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11:45pm  Sunday  16 October 2011

It has been quite a busy week.  In Cagayan de Oro, I was quite surprised that a good number of people really get involved in the stock market.  My colleagues and I gave a presentation on the Philippine investment climate, i.e. stocks, bonds and mutual funds, and so many people stayed behind wanting to listen to my views on Philippine stocks.  I had a chance to share some of my favorites.  Obviously, ORE was one of the curiosities, and I was able to share the fundamentals behind the stock.  Anyway, the more contacts we have with the company (ORE), the more updates we get.  Consequently, the more confident we become with the company’s performance.  Needless to say, the share price will behave on its own and will be swayed by the over-all market sentiment.  This is why company funamentals are important, so that when the market gets edgy, you can feel secure staying with the stock.  Of course, nothing should prevent you from lightening up if negative sentiment is very strong.  Just be sure you rebalance when the risk gets smaller.  In my book, that is when prices fall significantly as they did in late September and early October.

Another stock I shared was DMC and  I had already pointed out the merits of DMC in an earlier blog.  I have a very recent analyst report which even strengthens the case for buying DMC.  This time, we can almost see values increasing towards 50 pesos per share.  SCC shares the same outlook as far as I am concerned.

While the mining sector remains my favorite, I cannot help but see the latest dynamics in the banking sector.  MBT has recovered sharply from the low 60′s and looks poised to break into the 70′s.  Like DMC, a lot of MBT shares changed hands when the market was dropping.  I sense that the drop was indeed overdone in both the U.S. and in the Philippines.  Now that 3Q earnings are showing the resilience of S&P 500 companies, I think investors will be more convinced of the strength of the local banking sector, and MBT has been a bell weather for Philippine banks.

I would like to point out PNB as a potential performer in the next few months.  The merger story has come alive again, and this time around, I see the M&A to proceed more decisively.  One reason I say this is because I have very strong faith that the new CEO – Carlos Pedrosa – has what it takes to make it happen.  He has 2 bank mergers tucked in his belt already – Pilipinas Bank which he sold to Prudential which was eventually acquired by BPI and the smallish First E-Bank whichs was originally owned by MVP’s group which Pedrosa eventually sold to BDO.  For me track record is a key element to a CEO’s ability to get thinks done.  I wold venture to guess that within the next 2 quarters, PNB will merge with Allied and the NAV of the surviving listed entity will be between 70 and 80 pesos.  I would put a good portion of my money on this trade.  PNB hit the low 40′s in the recent downturn, but I sense that very little supply went out at those depressed prices.  My stats tell me that most of the supply should come around 60 implying that at below this price, PNB has very little downside risk.

I am of the opinion that the U.S. will be seeing good corporate results in the coming days.  These good news will underpin market sentiment.  Similarly, the fears of a European meltdown are starting to gain sobriety.  I think we will be in for a good market this week.

P.S.  One of my broker analysts tells me it may be good to punt on NI today as it has lagged the market so far

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