7:00 am  Monday   9 January 2012

The good thing about the beginning of the year is that fund managers use year end stock closing prices as new reference.  With the close of the old year, it is really back to square one as to reckoning of portfolio performance.  That is why I think it is always good to mark your portfolio to market especially with the close of the old and the start of the new year.  This will make you more objective in your portfolio.

For one, I think 2012 is starting well and the January effect seems to be going the way of the optimists.  I am quite bullish for this month and possibly also for February.  Some stocks consolidated well in December and shook off some supply over hang – you know, those who chased prices but have weak hands.  Anyway, for a stock like LC, I think consolidation may have worked its way through and investors in the stock are looking toward the March 2012 milestone of the Gold Fields deal.  The talk has been that Gold Fields is looking to acquire a good piece of LC after their full exploration report and mining plans are finalized in March.  I think such anticipation will underpin the price of LC/B.  Of course, now that gold prices seem to be stabilizing around the $1500 level, investors who play the gold price will be more comfortable taking positions in gold mining stocks.  I believe LC should be heading above 1.80 soon and will probably take out 2 in a few weeks.  With gold prices in mind, PX and MA/B should be seeing some excitement as well.

The mining sector was very strong in 2011, and some skeptics do not believe that the trend could carry on in 2012.  I for one do not think trends – like what we had seen in 2011 among mining stocks in the Philippines – would be broken in such short a time.  If you look closely, the trend in mining as a sector, only developed in the end of 1H2011.  The trend has not yet matured, I believe.  For a trend to mature, it means that everybody is already in the game and bottlenecks in the underlying fundamentals have started to hinder the sectors growth.  One such bottleneck could be softer commodity prices of metals.  This is something that traders have already anticipated and have reacted to by bring both spot and futures prices lower.  Nevertheless, margins of Philippine gold producers remain comfortable even if gold prices plunge to below $1000, and I do not think that scenario is in the radar screen of many metal experts right now.

Other prices such as copper and nickel have also eased a bit with the slowdown in Europe and China.  While copper is very sensitive to world commodity prices, apparently, the nickel ore which most companies like ORE and NI produce are not as sensitive.  It seems that the more important pricing mechanism for these producers are their bilateral supply agreements with their buyers in China depending on the kind of ore these buyers require.  I believe this is why BC and MARC were able to report selling prices above the prevailing spot and futures prices in the commodities markets.

Anyway, lest we be too engrossed in mining and forget the other sectors, I would like to express my inclination to consumer stocks particularly because the present push by the government for infrastructure spending will eventually filter down as early as the middle of 1Q2012.  As I write, I had heard that the government is already working on projects amounting to Php 200 billion all over the country.  These are construction, restoration, and upgrading of roads and bridges.  This will put money into more hands, and with the Php/$ now above 44, total consumer spending is being given a boost.  I would keep a close eye on PGOLD and TDY because these are two companies that are making serious efforts to gain traction in their expansion programs.  PGOLD is still cheap relative to its regional peers making it a recent darling among foreign funds.  TDY, on the other had, has just paid a 20 cent dividend representing roughly a 4.76 % yield at a price of 4.20. TDY has even given special dividends in the past.

These are some ideas I hope will be useful as this month wears on.  It is good to start early, but one should also framework his or her portfolio strategy on the expectations of what lie ahead in both the market and the underlying business environment.

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