First Metro Asset Management Inc

High anxiety, by Gus Cosio

8:50am  Thursday  3 November 2011

Let us put things in perspective.  The DJIA fell 276 points ending below 12,000 on the last day of the month in a very rough month’s close.  Nevertheless, U.S. stocks ended its best month in a decade with an almost uninterrupted four-week rally as Europe appeared to have finally found a way out of its debt crisis.  The DJIA and S&P 500 closed at their lows of the year on Oct. 3 after a bloody summer with the market tanking 20 percent from its most recent peak.  October saw extreme volatility and despite the dismal Month-end, it was exceptional month for Wall Street with DJIA up 1,041 points, or 9.54 percent –  the largest monthly points gain in DJIA history.  With the largest monthly percentage gain since October 2002, the index ended a five-month losing streak and is up 3.3 percent.  Similarly, the S&P 500  rose 10.8 percent for the month, the best since December 1991.  Stronger corporate earnings from the likes Google, Caterpillar, Qualcomm, and McDonald’s and  favorable economic indicators such retail sales rose 1.1 percent in September, the biggest gain in seven months.

When November opened, renewed European anxiety set in again with the call to referendum by Greek Prime Minister George Papandreous which is a real cop out.  The markets dropped including here in the PSE, again not due to any fundamental change but because of the lingering fear of global recession.

Personally, I would be patient rather than anxious.  I would rather own stocks that I am comfortable with, stocks that I am willing to ride through stormy circumstances.  In other words, whether it be volatile or steady markets, I will just go for the stocks whose fundamentals are sound in my assessment such that the risk reward equation favors the risk I am taking.

Yesterday, the local market immediately tanked at the open and continued to deteriorate.  Volume was quite good, and at the end of the day, we saw net foreign buying of Php 614 million.  Foreign portfolios bought TEL, DGTL, SM and MBT at bargain basement prices.  We even saw PGOLD rise to 12.58 where buying continued through the run-off.

Last night, we saw Wall Street again rally although it had not regained the set back on Monday and Tuesday.  I think that the over-all direction of stocks is northward.  At least, that is my view on Philippine stocks.

PX, for one, reported P4.32billion net income for period ending 3Q-2011, up 102.9% YoY. Core earnings, which exclude non-recurring items, grew 72.3% to P3.98billion.   Although in 3Q11, earnings fell 1.9% to P1.13billion, PX still expects to top P5 billion for full year 2011.  In fact, full year brokers estimates go as high as P5.8billion.  Of course, PX is the bluest chip in the mining sector, and to my mind, I think it provides bell weather as to how the sector in general will perform – at least those companies which are in production.  Among those I follow are AT, BC, ORE, NIKL and NI.  I think all these mining companies are stepping up production to garner a dominant supplier role in China whether the economy slows down or not.  I think the local mining sector will gain greater credibility because of this.

As to stocks that are screaming buys today, I would probably choose PNB, DMC and PGOLD – PNB and DMC because it has pulled back from recent highs and PGOLD because demand for the stocks has gathered momentum.  PNB is set to make new announcements on its merger.  I just do not know when.  DMC is just too cheap to ignore at yesterday’s levels.  PGOLD is a very good proxy for consumer spending in the country.  With Christmas season already here, I think PGOLD will be raking it in over the next few months.

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First Metro Asset Management Inc