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11:13 am  Wednesday 26 October 2011

The strength of Philippine stock prices yesterday was not met with strong volume.  This leads me to think that in spite of traders and investors sitting on a pile of cash, they do not want to chase prices.  The decline in stock prices today gives us good opportunity to buy the stocks we like.  Normally, mining stocks are relatively risky; but in the current business environment, I think it poses the best opportunity for both capital preservation and appreciation particularly for mining stocks that are already in production.

Yesterday NIKL reported an explosive 3Q-2011 earnings on the back of a sharp increase in nickel ore shipments.  NIKL posted 9M11 income of P3.26 bn on revenue of P10.2 billion, way ahead of consensus estimate for the full year of P2.64 billion net income and P11.35 billion revenue.  The stock trades at 9.6X 2011 consensus earnings as 3Q-2011 net income grew 115% YoY to P1.53 bn.  This should be great news for the nickel mining industry as it reflects the sustained demand for the mineral which generally goes to China.  Yesterday, the wires reported that China Manufacturing Purchasing Managers’ Index climbed to 51.1 on a 100-point scale, up from 49.9 in September.  Among key sub-components of the survey, manufacturing output rose to a six-month high of 51.7, picking up from 50.3 in September, and above the 50 level dividing expansion from contraction.

The good news is that NIKL and other nickel producers ORE and NI are selling all their production to China buyers.  It looks to me that both ORE and NI are certain beneficiaries of the core demand for the metal in China.  With NI and its joint venture with Glencore, there appears to be anticipation that a solid order book is being built for NI.  The recent price action on the stock should attract more analyst coverage and eventual institutional support.  If we look at how ORE has eveolved over the past 2 years, I reckon that NI should be able to garner a similar and even a broader following.  Perhaps, slowly accumulating a core position in NI should not be such a bad idea.  Today’s price and volume spike should be an encouraging move for technical traders.

The market is down as I write, but I consider this a dip which presents a buying opportunity.  I think picking up some ICT and DMC today should prove profitable.

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