First Metro Asset Management Inc

Riding the herd by Gus Cosio

6:20 pm Tuesday 19 July 2011

If you look at the top 10 stocks on value traded today, except for PWR, all are fundamentally sound stocks. The Philippine stock market is showing a life of its own. The U.S. and European markets were down overnight, and the region was pretty mixed during the day. Yet the PSEi was pretty firm all day with just a small dip which people saw as a buying opportunity.

Here are a few observations.

The banks look like they would steadily move better as BDO is following MBT’s strong move last week. BPI is also very steady with very little downside risk. I see BPI to be well supported at 58 and very strong at 57.50 which means that if you want to add to positions but want to be cautious, BPI should be a good bet. Of course BDO and MBT are set to move to better values going forward as do some of the banks. I would take a look at SECB and UBP which are fundamentally strong second line banks.

I am sure people noticed the strong showing of SCC today rising to 229. DMC had a strong move to 46 yesterday and took a breather today, but with earnings expectations for the company running high, I would not be surprised if we see another surge in DMC soon. Remember also that DMC is the minority partner of MPI in Maynilad. With American investment banking giant Morgan Stanley building up a 6.5%, about 1.44 bln common shares, stake in infra-structure holding firm MPI, there must be substantial value in MPI as well. Of course, MPI keeps on doing these fund raising via issuance of new shares which upsets some share holders. Do not forget, however, that MPI is in infrastructure and gestation is quite long for this business. What is good about trading the stock is there is value that is slowly building up as projects come to fruition. You should be able to continuously trade in and out of the share to take advantage of the volatility and not be worried that you are holding on to nothing.

AP showed a good bounce yesterday, but gave some back today. What I find boring about AP nowadays is the fact that the spectacular growth we saw in the past 2 years is not there anymore. It will be a stable company with earnings growth within normal expectation. For EDC, I think the story is much more exciting. I think that earnings are expected to grow by 40 to 45 percent in 2012. On top of that, EDC is a favorite of environmentally friendly portfolios, and apart from COAT, it is the only green friendly stock in the Philippines which is very liquid. I think EDC now has its base between 6.80 and 6.85 so buying at this level will be a very sound risk/reward proposition. FGEN, however, looks a little toppy at 15.50. I would probably try to sell some soon.

Serious players in the market should not ignore TEL. On Monday, it closed at 2400 and traded at 2402 today before closing at 2388. I think the resolution to the DGTL merger is soon to come and the foreign ownership issue will not be too difficult to surmount. My guess is that in a few weeks, we could see TEL breaking out above 2400. Having said that, we should not be ignoring JGS. Look at RLC and URC; both stocks have been moving forward while JGS has been flat. I think JGS buyers are only waiting to see more light on the TEL/DGTL transaction and the big move would be made even before anything is announced.

Finally, we come to mining stocks. Sometimes following a stock like LC can be boring, but today was not one of those days. When we opened on Monday, it seemed pretty obvious to me that a whole lot of buyers were just waiting to add positions at 1.05. I thought 1.05 was too low, so I moved at 1.08 telling myself that one never catches the lows anyway. LC will be on its way above 1.20 and still it is cheap. I will be discussing some mining issues in an investors seminar tomorrow in Binondo, and I think it will be a very lively discussion. Interest in mining has just started and LC had a lot to do with it.

Of course, PX and AT have a lot to do with the strong interest in the mining sector; but we do not see these stocks showing us 2 or 3 baggers anymore. The 2-bagger possibilities right now remain to be MA and ORE. MA will definitely benefit from gold prices breaking $1600 an ounce plus the fact that it is a penny stock. ORE on the other hand is going to be a production story. As capacity increases, earnings will rise simply because growth is certain, and margins are very hefty. For many months now, I had kept faith in this stock. I did not lose hope because there was production, and now, it is growing. Good fundamentals on a stock means a good earnings picture. I think ORE will not disappoint anymore, at least not in the next few months.

The bulls are running. The safe thing to do in a bull run is to run with the herd.

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First Metro Asset Management Inc