7:14 pm 30 June 2011
My bias nowadays is really the mining sector. I spoke with a close associate who is a noted economist, and I asked him what was the percentage of mining output to the total goods and services produced by the economy (GDP). Would you believe that it is less than 3%. That is really dismal considering the tapped and untapped mineral resources of the Philippines. As a market practitioner, this tells me that as a sector, we should really be seeing mining to be growing strongly by leaps and bounds. Fortunately, we are seeing this happening in both exploration and production. My impression is that the underlying production activity should translate itself more robustly in the financial markets because the financial markets normally leads the economy’s direction. I believe that more bankable project will come to the table and qualify for long-term project financing. This means serious production schedules which can effectively be quantified by analysts, not to mention sounder estimated of ore bodies and mineral resources.
I am finding substantive excitement in mining companies already and even the much maligned and discredited ORE has come back. After all, ORE has been producing and shipping nickel ore already, and will finally show profits this quarter. Even old time but neglected producing mines such as BC and DIZ have started acting up again. I think that investors should take this move seriously because the mining companies both local and foreign operators are dead serious in their plans. The most conservative mining stocks would be PX, MA, AT, NIKL and coal miner SCC because they are all in production stage with strong track records and expected profitability. LC, while their proven mineral reserves are enormous, still has to graduate to a high production mine. The good thing is that today, the variety of stock choices in the mining sector has widened. The smaller ones are still speculative, but probabilities are looking favorable. One just has to be diligent in information gathering.
Talking about the non-mining stocks, I think AP, EDC and FGEN are likely to see a price breakout soon. These stocks have been strongly underpinned by serious institutional buyers and price supports seem to have been gradually moving up. I hold both EDC and AP in my portfolio. I hope they have a price surge soon although I would not sell all my holdings. I would rather buy the breakout as additional positions and maintain my old holdings as a core position.
On TEL, I am not the least worried about this stock because of its intrinsic soundness. The company has core income of over Php 40 billion and has positive cash flow which we estimate at Php 65 billion. This means that TEL will continue to pay generous dividends for the simple reasons that they are making money and producing a lot of cash. In essence, I think holding TEL for the dividend yield alone should be quite profitable as a financial investment with a estimated yield of around 9% a year. I am also willing to bet that PLDT can battle it in court for a reconsideration and a reversal of the decision because the true situation is that preferred holders are shareholders whose risk on the company is similar to common shareholders. They fall behind all senior and subordinated creditors except that they have preferred dividends over common shares.
The market yesterday and today have been strongly influenced by window dressing and re-balancing of portfolios because of quarter and semester end reports. There are too many distortions to make conclusions to price actions yesterday and today. I believe the 1st of July should be the day to reckon with because it is the start of the second half. If I am right, this semester should bring the market to better levels.