First Metro Asset Management Inc

THE SUM GREATER THAN ITS PARTS? REALLY?

12:07 am   Friday   June 19, 2009   PSEi – 2434.26   US$/PHP 48.50

Yesterday, Philippine stocks was again lower.  That makes it 3 consecutive down days and a total of 178.59 since Monday.  Don’t let the numbers deceive you because at one point during the session, the market was up 27 points.  What’s going on is people are forming different opinions.  I think that is good.  A diverse market is a healthy market.  I am happy that people are putting different importance on their stock selection.

The sell off in TEL, AC, MWC, FLI, MEG and GLO tells me that those who want to reduce general exposures.  The drop in BPI looks like an adjustment from very expensive valuation, i.e., it was trading more than 2 times book value and dividend yield of less than 2%.  MER’s correction is likely profit taking by those who are squeezing the stock.  If you notice, MBT and ALI are trading steady at these levels.

My view is that the index could slide some more but certain stocks will start to buck the trend, particularly those with good stories to tell.  for instance something may be going on in MPI, FPH, BPC, EDC and FGEN simply because the Pangilinan group has to consolidate their MER stake in coordination with the Lopez group.  Similarly, there seems to be something going on in SMC and SMCB as these stocks have come to life after years of atrophy.  It may be related to recent disclosure by the company of a prferred convertible issue.

Then you have PNB where there are rumblings of unrest in the Lucio Tan shareholding family.  PNB could fall into the hands of somebody else with the stock trading at around half its book value yet its branch network is only next in number to that of BDO.  Which reminds me that SM is looking relatively cheap at present levels.

When the index is falling like this, it really provides good opportunity to look into cheap stocks, i.e., those  whose prices do not reflect the fair value of the counter.  It should also be time to look at small cap stocks whose earnings are steady or growing and have excellent prospects.  From time to time you see TUNA or COAT break into the most active list.  These are counters whose top lines are pretty steady and I think their dividend records are not bad at all. T he same can be said of dividends from SPH who recently raised dividends to .21 from .18 last year.  GMAP (or GMA7) also had good dividend yield and a good story for next year due to the forthcoming elections.  You may just be receiving more dividends from these guys next year.

All told, we may see  further slipping of the index; but I dare say that not all stocks will fall.  It is a situation where the parts may be greater than the sum.  Do I have that right?

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First Metro Asset Management Inc