A Positive Outlook by Gus Cosio

by Gus Cosio:


I think the sell off yesterday was overdone. Of course, the prevailing notion is that the Philippine market has become expensive and valuations are stretched. My thinking is that the earnings momentum may have just started. We haven't seen GDP growth this strong in a lifetime - at least in my lifetime. If you breakdown what the growth drivers were, they were construction and manufacturing. Construction was up 33% YoY, from 4Q12’s 30%. Private construction grew 31% while public construction surged 46%due to infrastructure spending by government without the any public-private partnership (PPP) projects yet coming on stream. Manufacturing was a bright spot growing 9.7% YoY.

These are the badly needed growth sectors that have lagged the growth of consumer spending. These sectors are catching up which tells me that economic activity is gaining breadth. If that is happening, corporate earnings growth normally behaves in a more leveraged manner, meaning that it can grow at a multiple of GDP. The way I see it, P/E compression is underway and stock prices are pretty fairly valued where they are today. I think the risk we face today is not so much that we could lose money, but that we could miss the upside opportunity.

Good day to all!

Stock Update as of May 30, 2013

Today must have been a very bad day for investors that just started to put their money into the stock market.

I would like to talk about 3 topics on this update. They are the following:
1.) Stock Update
2.) New PSE products
3.) What happened today?

1.) Stock Update

The day started with the PSE index at 7,200 and slowly started to slide down to the 7,100 level. Then the news of the Philippine GDP was released. PH GDP was at 7.8% at the 1st quarter, beating estimates of 6.1%

Congratulations to AGI holders who sold on May 15 when TP was hit. FPH is currently on hold status because its subsidiary, FGEN, 500 MW plant had to shutdown due to fire and this affected the stock along with the slump we have seen.

2.) I attended a seminar given by PSE last May 23 at the Marriott hotel and learned that the PSE is developing some very interesting new products. They are the following:

Exchange Traded Funds (ETF) - These act like mutual funds, except you can buy and sell them using your online brokers. Basically, when you buy an ETF, you are buying the enitre PSE index. Instead of buying stocks for every one of the 30 companies in the index, you just need to buy ETF. Warren Buffet always said to buy index-based funds, and this is the one he is talking about. ETF will be available on June 2013.

Short selling - soon, the PSE will allow short selling. One of the ways to make money in the stock market right now is when stock prices go up. The other is through dividends. With short selling, investors can now gain money when a stock goes down. How does this work? Lets take for example stock ABC which has a current price of P10. You did your due diligence and think that stock ABC will go down to P2. Short selling is "borrowing" the stock from PSE. So, you borrow stock ABC from PSE, sell it at P10. After some time (I dont have the figures yet), you will need to pay PSE for the stock. If ABC goes down to P2 by the time you need to pay for it, you only need to pay P2 and pocket the P8.

Exciting stuff.

3.) What happened today was this: The US stock market went down by 10%. Big foreign institution buyers quickly sold their stocks here and transferred their funds to take the opportunity in buying cheap stocks in the US. It is as simple as that. Also, our stock market has been growing so fast, that it needed to consolidate.

Now, what should we do? I also don't like seeing red in my portfolio, but is better to establish a cut-loss and save your money than to continue risking it. Is the stock market overheated? Yes, I honestly think it is. Will it still move up some more? Yes, but it will be slower than how it did in 2012.

Rule of thumb: make your stop loss at 8% no matter what stock it is. Be aggressive in cutting losses.

For newer investors, let me introduce you to the saying: "Sell in May, then go away." I don't really know who was the first person to say this but I keep reading it a lot about investors who, when May comes, sell everything and lie low. 

Now, why does this happen in May? From what I know, it is the time of year that alot of investment people in Wall Street take their vacations which leads to inactivity in the market. Whether this is true or not, I cannot prove.

As I said above, I think our stock market is now overheated and is reaching its resistance level at 7000++. What to do? Our options are

1.) Go into the bonds market. Bonds are fixed income based and is risk free, but at a lower interest rate(1.5% per annum vs savings account of 0.275% per annum).  The downside to this is that current inflation rate is at 3.7%, so your bond earnings is not enough to beat inflation.

2.) Put your money back into your savings account.

The choice is yours. Yes, our market now is quite risky. As for me, I'll wait for a few more months. Then I will shift 50% of my capital to bonds.

Be more cautious and May God bless your investments.

~Crimson

Hold from buying FPH

For now, stop buygin FPH.

The fire to their subsidiary's, FGEN,  San Lorenzo plant will decrease earnings this year.

Since this is an internal problem, I dont recommend buying more of the stock even if it is cheaper now.

We buy when the price decrease is caused by external factors, and not internal ones.

Positive Outlook by Gus Cosio

from Gus Cosio:


The market came back from intra-day lows to close up 15.71 points. It did not surprise me that as the market opened, most institutional investors were buyers albeit at lower levels. Even as foreign sellers were aplenty, local funds were more than willing to take on whatever stocks were on the block. At the end of the day, the market's position saw net foreign selling of Php 1.74 billion. Adding that to the Php 1.24 billion net foreign selling yesterday and the Php 1.2 billion net foreign selling the previous whole week, we are seeing a case where domestic investors are buying stocks cheap.

I like situations such as this because it shows that the breadth of the local market is growing. Hopefully, trading liquidity will be further developed as the PSE sees wider participation from domestic investors, be they individuals or institutions.

I greatly appreciate that local investors are becoming more forthcoming in taking market risks. This is textbook situation when relatively better returns can be gained from the equity market given the low levels of interest rates. Some stocks are still showing very good dividend yields. TEL should be at the top of that list, and MER should not be far behind. If we scour the list of large cap stocks, there will be a few that would be worthwhile buying for dividend yield. Nonetheless, even if we see another decline in prices before Thursday, I do not think it would be enough to reverse the present trend. I think the GDP number coming out on Thursday can assure us that the way to find returns this year will still be the equities market.

The recent top up for MWIDE certainly showed the resilience of this stock. I noticed that when MWIDE hit the top up price of 20, it strongly bounced back to close at 20.90. I am also quite impressed at TEL's resilience above 3150, as well as SM's good support at 1150. That shows the formidable following of these stocks. What was stellar today was URC which gained 4.64%. What it tells me is that the consumer story in the Philippines is not yet over. The bounce of DNL and JFC somewhat supports this view.

Anyway, I will hold on to my positive outlook on the market in spite of the recent downturn. To some people, bloody situations may seem grim; but if one puts it into perspective, it remains to be opportunity.

Stocks on Sale!

Time to go shopping!

Moments like these, you must find the discipline not to panic. No, this isn't the market crash...yet.

This is just a major correction. The market was at overbought levels and needed to cool off. This is okay. This is necessary to sustain the growth of our market. How can you tell? Because the world markets are down as well. Japan's stock market is down by 10%.

So control your mind and dont panic. See the opportunity in this situation. The opportunity to buy more stocks!

Also a few words by Gus Cosio:


So the market tanked the last few days; big deal. In perspective, we started the year at 5,812 and rallied to 6,870 in March; corrected to 6,419 within two weeks of that peak. We haven't looked back since. It was only last week until yesterday that we are seeing a meaningful correction. 

I am no fortune teller, nor am I a speculator. I try to responsibly manage investors portfolio to try to get meaningful returns while mitigating the attendant risks. That is why I welcome this correction. Why am I confident that this is merely a correction even if the market slips past 7,000? Well, I think because we are not facing any financial bottleneck both locally and internationally. 

This foreign and local selling that we are seeing follow risk management rules of thumb for fund managers. Most funds would like to bank in 20 to 25 percent gains, and that is precisely where a lot of the funds are. I must admit, they are the most influential in the market right now. Nevertheless, I would not underestimate the power of local investors. Objectively, I can see very little bottlenecks in the domestic economy. I was discussing with my favorite economist yesterday, and the only bottleneck visible was if infrastructure spending by government stops. Otherwise, the economy's momentum is rather strong.

People will position for the GDP numbers which will come out on Thursday. I think it may be worthwhile making a sound bet.


May God Bless your investments.

~Crimson

Suze Orman on PH Money Culture

source: Rappler

MANILA, Philippines - If Filipinos want to save and become financially sustainable in the future, they should start changing their culture of spending beyond their means, world-renowned personal finance guru Suze Orman said.

"Don't spend money you don't have to impress people you don't know or even like," she said in a media briefing in Makati City on Thursday, May 16.

The finance icon is back in the Philippines for the second time to give advice on how to manage personal finances, something which heavy-spending Filipinos need.

The personal finance guru lauded the Filipinos' love for their family and the innate nature of making everyone at home and comfortable but said that they should also be true to themselves in terms of spending money.

She cited, as an example, the kind of extravagance that Filipinos put in terms of celebrating events. Filipinos try to accommodate everyone to the point of spending money beyond their means, which in turn puts them in debt.

"I understand the Philippine culture. But if you continue to do something that you don't have the money to do then you end up poor, you end up being dependent on others," she said.

The goal of money, Orman said, is not for people to be slaves of it but to make them feel safe and secure, not only in the present, but especially in the future.

Learning to say no

Another notable thing about Filipinos according to Orman is their inability to say no, especially to family members.

In a country kept afloat by consumer spending and remittances, Filipinos need to learn how to better manage their finances, according to Orman.

In 2012, Bangko Sentral ng Pilipinas (BSP) said personal remittances from Overseas Filipino Workers (OFWs) reached a record high $23.8 billion.

Consumer spending has been on an upward trend yet only 2 out of 10 Filipino families have bank accounts - an alarming figure, said the personal finance expert.

Orman narrated the generic story of how most OFWs tend to send all their money to their families in the Philippines while they suffer in poverty in the foreign country they are working in.

Instances when relatives tend to ask a lot of demands to things not really necessary in everyday life as well as OFWs being bound to the duty of bringing home a lot of souvenirs and throwing a grand party everytime they come home.

This, she said, makes family members of OFWs heavily dependent on the remittances they send without actually trying to find work and stretch their muscles to earn money to help.

"Here is the truth. I understand the Philippine culture, but it needs to be rethought. It is not to disgrace the culture. You are not turning your back on your culture, but you should not turn back on the truth of yourself and your situation. Live within your means," Orman said.

"When your relatives ask you money for clothes or vacation expenses, learn how to say no. Give them money for their needs but not luxuries. It is not hurting them because you denied what they wanted. You are actually helping them to become better managers of their finances."

Teaching people how to say no to these things, according to the personal finance guru, is her goal in visiting the Philippines.

"I just want to be clear. I don't want to come to the Philippines to change your culture. I don't want to come to the Philippines to change your culture and change the love you have with your families and with each other. I want to come here and give a voice to those who don't have the voice, to people who tell me what they wish to tell their families but don't have the courage to do so," she said.

Orman is a New York Times best-selling author 9 times over and is considered one of Forbes 100 most powerful women in the world in 2010. - Rappler.com

Buying Opportunity for MEG, and PGOLD

from Business Section - Philippine Inquirer:

MANILA, Philippines—Infrastructure holding firm Metro Pacific Investments has joined the closely tracked MSCI Philippines index, replacing conglomerate San Miguel Corp. effective May 31 this year.
MSCI also realigned the MSCI Global Small Cap Indices, with five new companies joining the index, all of which are not part of the main-share Philippine Stock Exchange index: D&L Industries, EEI Corp., Pepsi-Cola Products Philippines Corp., RFM Corp. and San Miguel Purefoods.

Deleted from the small cap index were GT Capital Holdings, Megaworld Corp., Puregold Price Club, Robinsons Land Corp. and Security Bank Corp.

Any adjustment in a country’s weight could be attributed to the dynamics of prices, number of shares, movement in prices and free float factor of component companies. A cap of foreign ownership also has an impact of reducing maximum amount of shares that investors can buy.

As such, whenever the level of foreign ownership gets too close to the threshhold such that it’s impossible to buy new shares, MCSI mitigates the effect by cutting the weight of that company in the index.

What does this mean?

MSCI is an index fund. Think of it as a mutual fund being whose stocks are composed of Philippine stocks. As stated above, MPI will be replacing SMC effective May 31. We might see an increase in MPI price in the short-term. Also joining the index are EEI, DNL, PIP, RFM and PF. These also might increase in the short-term. Let us wait and see if our target prices will be hit.

As for those removed from the index like GTCAP, MEG, PGOLD, RLC, and SECB, these stocks will likely go down in the short-term and that would be a great buying opportunity.

Of these stocks, MEG and PGOLD are on our list. PGOLD is a retail company, and MEG is in real estate. If you haven't already bought you're 3 focus stocks, I would suggest MEG.

Good luck, God bless, and as always, caveat!

~Crimson

Continue Buying

Hi Guys. Sorry I forgot to update on the HOLD Status.

PSE has breached the 7,300 resistance level and is currently at 7,373.77 as of 1:53 pm today (May 15, 2013) as seen below.

So continue buying stocks that are still below the Buy Below Price.

Caveat!

Stock Update as of May 8, 2013

I gave out a HOLD signal from buying anything earlier. Please see this link for the full details:

http://pse-investing.blogspot.com/2013/05/hold-from-buying.html

What this means is that, if you added capital, refrain from buying for now. Why? Because prices might become cheaper in the next few days.

For those that do not know the term "support", this is the price level wherein if a price goes down in price, it is the level where people/buyers "feel" that the stock is cheap and will buy that stock once more. This rush in buying stops the stock price from going down further and is termed as the "support level".

Moving on to the update, congrats to MER holders for hitting the target price. I will soon remove MER from our next stock update.

As you can see from the above photo of PSE's price movement today, it started going up to the 7,185 level, and dropped back down to the 7,175 level until lunch break. Continue to observe the movement until this afternoon and tomorrow.

So based off the update above, we can see that EEI and COG have the largest upside. MPI is nearing TP, so I would set a GTC (for COL users) order to sell at P6.55 already by now. COL changed GTC order duration from 7 days to 60 days.

For non-COL users, try and see if there is a sell order that makes your order valid for 7-days or more.


As always, caveat emptor and may God bless your investments.

~Crimson

Hold from Buying

PSEi

Recommendation: HOLD

Support: 7,006 – 6,851

Resistance: 7,250 – 7,300

• The PSEi lost 24-pts after some profit taking continued to press prices off Friday’s gap – also giving prices time to ease its disparity (overbought) to its short term averages

• As its trend still points up, a Hold is maintained but a careful watch over its support stop is necessary

• Some careful attention should also be placed over its weekly MACD readings as it seems to be quite vulnerable to a wider corrective potential... similar to what it demonstrated last year (in April to May 2012)

• Support is placed first between 7,006 the followed by 6,851

If you added capital, hold from buying. If support breaks, we need to watch where the new support will be.