First Metro Asset Management Inc

LOCK, STOCK, AND SAFETY DEPOSIT BOXES by Gus Cosio

7:25  Wednesday  21 July 2010  Philippine Stock Exchange Index  3418.71 (+0.38%)

I spoke to some people on the PSE trading floor and there seem to be some wariness being felt about the new trading system.  There are misgivings about putting on larger trades because money could get stuck if there are system failures.  of course, there will always be those who would rather pass up some opportunities rather than risk losing money.  I don’t blame them.  The value of this information (traders’ skepticism on the new trading system) is that it deflates some of the positive market outlook in anticipation of technical hurdles in the trading system.  This tells me that people’s view of the market is positive but not too positive.

I interpret market action today to be that of rotational buying.  You have the large cap stocks like TEL, MBT and BPI down a shade, and you see the likes of PNB, MEG, DMC and SCC continuing to surge.  All told, we are seeing a very healthy market.  There are people who appear to be trading the range, and you can see it today in stocks like MPI, EDC and MER.  Then, there is the accumulation that seem to be going on in stocks like DGTL and SMDC.

When I see different strategies and movements simultaneously going on, then I see a market that is surely deepening.  I think that is very positive for everyone involved.  It may be a slow process, and it probably took the 2008 global financial crisis to do it, but the deepening of the Philippine market may just be happening this year.

This is all good philosophically, but the bottom line is how to make money.  For those who were lucky enough to bet on the PNB bandwagon early, there is scuttlebutt that makes me believe that the story has a long way to go.  Rumors have been flying about potential M&A activity in PNB.  The story is getting stronger; and concrete steps, I hear, are going on behind the scene.

I look at PNB as a pure play on the company’s fundamentals which are: a strong banking franchise, high customer recognition, wide distribution network, skilled management and staff, a balance sheet that has gotten stronger over the last 10 years, and a strong return to profitability.  Anyone who has the money will be willing to buy PNB lock, stock and safety deposit boxes.  Will you be chasing prices if you bought at 38?  I don’t think so.  It boils down to the question as to whether you think this stock is worth 38 or higher.

Another stock which has been going great guns is SCC, but at 98.50 people may just be wont to shy away from the stock.  After all, at the beginning of the year, SCC was only 35.  Then again, I hear that cash flows from the recently acquired Calaca power plant is much higher than the company even anticipated.  again, it boils down to whether people believe that this stock is worth higher than 98.50.  I personally think so, but to be safe, I decided to place my bet on DMC which owns a good chunk of SCC.  Either way, I think both stock will continue to do well.

Of course, the latest favorite is DGTL.  I am sure that there are a lot of arguments against buying this stock.  I welcome all of them, and I will probably not answer most of them for fear of being repeating myself too often.  The price action in DGTL simply tells me that more and more people are getting convinced as more primary research comes out.  I must stress, the decision must come from research because you can never substitute rumor for hard facts.  If DGTL slowly claws its way up to 2, I would be the least surprised.  It is probably the only telco play for the time being although my strategy is to asset allocate between DGTL and TEL.  TEL has the yield and DGTL has the growing market share.  I think together the portfolio result will be more that satisfactory.

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First Metro Asset Management Inc