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7:30 pm   Tuesday  18 October 2011

Most of the developed markets were down Monday and Philippine stocks have followed suit.  There is nothing new that caused the downturn which leads me to conlude that it is mere profit taking.  Looking at the S&P 500 Index chart as well as the DJIA, I sense a trading range to be the likely scenario –  1100 to 1225 on the S&P and 10,500 to 11,700 on the DJIA.  Corporate earnings among S&P 500 companies are not bad.   IBM reported 3Q-2011 EPS of 3.19 vs. 2.82 in 3Q-2010, but fell short of consensus of 3.22 and caused the price of Big Blue to slide by 2.07%.  For me such  a reaction in the U.S. merely reflects further edginess.  Over the weekend, I had read an analysis by James Paulsen, PhD. who is chief startegist at Wells Asset Management.  He says recession fears are due less to worsening economic fundamentals than they are being driven by worsening financial market signals.  In the end, it will be economic fundamentals that will bring the U.S. into the next recession.  Fortunately, the Economy-Weighted U.S. Manufacturing & Service Sectors ISM Survey Composite Index is at 53 which is in slowdown but not in recesion.  The Johnson Redbook Same Store Retail Sales Index is firm at around 4%, and the 4-week Moving Average of Initial Weekly Unemployment Insurance Claims is in the low 400′s.  All of these do not indicate recession.

In our neck of the woods, the much vaunted slowdown in China’s GDP has not been dramatic so far.  3Q-2011 GDP rose 9.1% y-0-y from 2Q-2011 gain of 9.5% , slightly below the median forecast of 9.2% in separate Dow Jones News wires and Reuters surveys. Industrial production for September rose 13.8% y-o-y, accelerating from 13.5% in August and above a 13.3% prediction in the Dow Jones News wires and Reuters surveys. September retail sales rose 17.7%, beating a Reuters forecast of 17% growth.  In Australia, shipment of coal and iron to China and India have not slowed down.

With all of these in mind, it seems that is is still Greece that is the problem.  So what else is new?  Tell me something that I do not already know that is bringing this market down again.  Personally, I think we’ve seen the base of the recent price movement.  The worst scenario in my mind is that the local index drops to 3700.  I put very little chance of that happening because we had seen price action when we got there.  Today, in spite of market weakness, we saw net foreign buying of Php 225 million.  Buying on weakness on the back of fear and profit taking?  Perhaps.  My strategy is to accumulate cheap stocks as prices slide.

My list includes further buying of PNB and DMC.  I think these are 2 very undervalued stocks which I see around 30% upside in the next 2 to 3 months.  I noticed that MA/B has been strong in spite of weakness in LC.  I am inclined to go for MA/B since it will be producing from its Placer mine in 12 months and it will be receiving revenue share from PX in the operations of the Kalayaan property.  I fear that LC would languish over the next few weeks in the absence of development news.

As to ORE, I think the absence of news from the company is mainly why price action has been flat.  It is probably wise to ask the company if production is underway for the remainder of the 24 shipments targeted for this year.  AT on the other hand moved in the past few days due to firming up of copper prices.  The same thing is happening to PX although profit taking had set in today.

Incidentally, I did mention Glencore a few days back.  For the interest of those who follow NI who recently did a joint venture with the company, Glencore is the 18th largest company in the world with revenues of US$ 145 billion and net profits of US$ 1,291 billion.  It is the largest commodities trading firm in the world and owns controlling interest mineral producers such as Xtrata whose market cap is around US$ 45 billion.  Glencore itself is listed in the London, Swiss and Hong Kong Stock exchanges with market cap of around US$ 60 billion.  It makes me quite curious about the joint venture with NI.  Based on available information, Glencore has shareholdings in big mining operations in practically all continents.  In the Philippines, it owns the controlling interest in PASAR, the local copper smelting plant.  It is no surprise that a company such has this would have a strategy of acquiring stakes in direct mineral producers.  My analysts have identified NI as a laggard stock of late.  In short, if the market does recover and proceed to price in proper earnings results for 2011, NI could in fact be a good trade for both intermediate or long term.

One experienced broker had told me that historically, most trading profits in stocks are made in the last 10 weeks of the year.  We are just about there, and opportunities abound.  I think Greece has been such a menace to all of us and people have beaten this horse dead many times over.  I would like to look at fresh leads to trade on.  If it does not come, I will just stick to company fundamentals since things are still looking cheap.  It is like walking the supermarket at just picking up the bargains.  Does this sound like a familair retail stock – PGOLD?

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