Prides of March by Gus Cosio
The strength of the stock market with a 77 point rise in the PSEi and net foreign buying of close to Php 1 billion on Wednesday simply reflects perhaps a sustainable bullishness of equity investors who focus on Philippine stocks. Stocks had retreated from record highs on 23 February but with less than a 200 point correction. What we ought to see in yesterday’s strong surge is a greater commitment of funds by investors of all sizes and shapes. My initial reaction to yesterday’s strong close was that it was month end window dressing. However, with very strong net foreign buying, I have to conclude that foreign investors are adding to asset allocation in Philippine stocks which is a very favorable sign.
One of the strongest gains was seen in EDC, a stock that had been badly battered due to the delays in the rehabilitation of it’s Bacman generating plant. While many would see this as perhaps the stock price having fully priced the lower earnings this year, I have become jaundiced in my view of EDC. The way it’s management handled the Bacman problem and how they disseminated it to investors leaves too much to be desired and to me reflects the quality of EDC’s management. While others may have a more favorable view, I would not rush back to EDC, and I would treat their disclosures with a lot of apprehension.
I would rather go to a stock like DMC which recently bagged the MRT7 contract. DMC has a very good record lately of steadily delivering on it’s earnings guidance. In fact, DMC has been exceeding investors expectations which to me reflects a very appropriate track record in managing investors expectations. In addition, Maynilad in which DMC is the minority partner of MPI is expected to report record profits for 2011. Having said that, MPI has been lagging other conglomerates and is due to catch up soon. I think MPI is worth a serious look at current prices.
In the mining sector, a lot of the second line mining stocks have hogged the limelight so far. The excitement will not likely go away given that there will be mining forum in Manila on Friday, 2 March and a more substantial 3-day mining conference in Cebu. I think the mining issues should not be ignored in the face of the strength of large cap prices. It is never too late to construct your buy list. More importantly, it is also prudent to manage your cash and take some profits here and there to take advantage of any rotation that fund managers will do once values become stretched.
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