SMC

San Miguel Corporation(SMC) is a company almost synonymous to being Filipino. A company that has for more than a century provided our fathers and their fathers a reason and means to stay up late. Recently, this company has ventured into non-traditional business sectors such as energy, oil, telecommunications, infrastructure, etc. and it has paid off.

A few months ago, I would have been hesitant with all the stock rights offering, bond sales, diversification, with no concrete direction(at least nothing was obvious to me). I found no reason to invest in this company, even less reason to recommend it as a stock to watch. But their 2010 annual report gave me an insight and instilled in me a strong resolve that SMC is a determined company that would one day dominate the Filipino corporate scene. The recent 30 percent drop in price, by no means paints a complete picture of what this company has to offer today or in the near future. With a 146 percent increase in profit for the 1st quarter of 2011, I believe I can safely assume that their investments have paid off. This week's Inquirer has an article on how two foreign investment firms believe that SMC's investment in non-traditional businesses are paying off. Although it would be great to have more information on this stock, I wouldn't be surprised if this particular outperforms the rest of the PSE, despite the 30 percent drop. The drop was rumored to be caused by people acting on their own best interest, I would rather not comment on it, since this is, to date, unverified.

Eurozone debt crisis..

I haven't had time to post a new entry the past few weeks; so I'm going to get my feet wet by starting with a short one addressing today's across the board sell-off. Some friends of mine who have just entered the market the past few months have expressed their concern of today's market action.

Many investors are concerned that the economic recovery is faltering and when there is uncertainty in the equities market, the usual response it to hoard cash by selling riskier assets. Unfortunately, emerging market (like ours) falls into the category of "riskier assets". Our economy is still poised to grow this year and probably the next few years, so i believe the EU zone uncertainty is simply a bump on the road.

At the end of the day, markets will rise and fall due to chatter, but we should rest easy knowing that the value is what drives the price or down, not sentiment by fund managers, individuals, or as others may say, weak hands.

Just a quick note of what I've been looking at recently. SCC has continued to attract my attention, the recent 3 figure spike in profit growth is something we just can't ignore. LC has also begun to attract my attention due to the increased volume and good news coming from its foreign partner, Gold Fields, a swiss-based mining company (I will be posting an entry on this soon). A few other companies that I have continues to study are DMC, MBT, UBP.

Profit Taking and its Pains

I finally took some profits a couple of days ago from one of my favorite picks, DMC. The company was trading at all time highs and it has for the most part received a lot of selling pressure at the 48 level. I sold more than half between 47-48 and have left behind a small position. Today its trading at the 44-45 level and I expect it to go a tad bit lower before I would find this stock attractive again. Don't take it as my advice to stay away from the stock, I love the company and think its got some room to grow for 2011, 2012, and 2013; but numbers tell me that the company is already being overbought and it would be prudent to take profit then see your profits slowly melt away.

Lately, I've been asked by a number of friends whether or not LR and AGI is worth looking into. Truth is, I've never really bothered. I pay close attention to its prices and its numbers, but I've never really considered in depth research. This is what I've been hearing; both companies are worth at least 15 pesos a share and that AGI has recently broken through resistance, while LR has finally met some. Either way; the price movement of both these companies have been for the most part phenomenal in the past few months. And if past number are any indication to its potential, they've got some way to go.

SCC, has recently declared a 10 peso per share cash dividend due to be credited on June 22, 2011. On top of that, most foreign and local brokers have re-rated it upwards. Prices may have fallen recently, but I personally think that was a great opportunity to buy. If any of you are interested in a vertically integrated company with plays on resources and consumer needs; then SCC is definitely worth looking into. Don't let its past numbers scare you, do your research; you will find that the company at today's price is relatively cheap.

Guidance

Very often market movement is shaped by general sentiment of investors; locally, that sentiment seems to be guided by foreign buying or selling. The past few days, I've seen two of my favorite stocks move in almost opposite directions, due to foreign guidance.

SCC has been moving down due to the recent sell-off by foreign funds led by Deustche. SCC's re-rating from 215-205 seems to have affected foreign perception of the stock. Locally though, funds have been re-rating the company upwards. With citiseconline giving SCC a FV of 295, consensus seems to hit beyond the 250 peso mark and that can only be good news for most investors. ATR is also said to be initiating coverage of the company soon. Investors should be mindful that based on 2010 PE ratio of 20+ the stock may seem overly priced, but from the 2011 and 2012 perspective; the company has quite a bit more room to move up. My fearless forecast is that it would shatter the 250 peso mark in the next 3-6 months and continue to move up.

DMC, on the other hand, has been steadily moving up. It broke through its all time high of 41 pesos a couple of days ago and it has continued to move up and is testing the 43 peso mark. Some people may argue that this stock is expensive, but comparing it to sectoral peers such as MPI, SMPH, AC this stock has quite a bit of an upside. Consider the business the company is in; power, mining, construction (with 48 billion pesos worth of backlog), water, and you recognize a very good business model that stretches around the whole economic growth story our country is going through. Understanding that the value, whether peaks or bottoms, are meant to be broken is part of realizing that you are not merely owning a piece of paper, but a part of the company.

Off topic, SMC has suspended share trading up until the first week of May to avoid "speculation"; I guess a lot of movement may happen if the stock was traded today. We have the SC ruling in favor of Cojuangco on his years-long battle with the government for control of a substantial amount of shares. And we also have the share rights offering that is rumored to priced at 150 pesos per share. Interesting to see where the company intends to use the proceeds, I'm guessing expansion of power assets, thats what i would do.

With holy week just around the corner, I expect trading to slow down, but who knows, there might be good companies on the cheap after the two-day slide the PSE experienced. Might be a good time to pick up some strong companies that have largely been ignored or have been sold down; EDC, SCC, CEB, UBP, URC, just to name a few

Bullishness

Week on week our market has been pushing boundaries and with foreigners buying more than they are selling our market is in a pretty good spot at this point. Strong buying can be seen in some of my favorite stocks such as EDC, DMC, MBT, AP, and a recent addition ICT. I wouldn't mind adding to my positions in EDC, MBT, and AP; but I would probably shy away from adding more to DMC until I see what their first quarter results are like. I've also started to take a keen interest in the banks simply cause of the recent interest rate increase and speculation that more are to follow. A number of banks that I can't seem to get enough of are MBT(being a sectoral leader), UBP(good, steady growth, 2.5 pesos per share dividends), and SECB(numbers are just all green).

I've taken an interest in ICTSI, because of its global story. The company has acquired numerous ports in different countries; ranging from Brazil to China to the USA to Madagascar (you get the picture). And it continues to do so! A good friend of mine tells me that its books are in order and their numbers have a dark shade of green. FMSC has recently initiated coverage of ICT, estimating the price to be around 50 pesos per share. Looking forward to 2012, their PE ratio would stand at 15-16 and that would be not factoring in their recent acquisitions. One major factor that may affect growth of earnings, may be the slowdown of trade due to the recent earthquake and tsunami in Japan.

So where do I see the market going from here, I think we're due for a little pullback and that would only mean a better opportunity to jump on the bull market. One thing this comeback has shown is that research(doing you homework) pays off.

Semirara... again

I can't seem to read enough good news on SCC, Semirara Mining, and most brokers can't seem to as well. With earnings growth exceeding 110 percent in 2010, it's no wonder SCC has gotten a lot of attention. One undeniable fact about this company is that it has a play in two of sectors that is seen by many to drive the index this year, power and commodities. With its recent inclusion in the FTSE Asia- Pacific Index, along with parent company DMC, the company is poised to grab more attention from foreign brokers.

Here's what some brokers having been saying about SCC

ATR Kim Eng - "SCC is NOT RATED at the moment, but our initiating coverage report is
underway."

COL - "Although FY10 earnings were in line, we will be reviewing our forecasts in light of the higher than expected net coal production and the recent increase in coal prices. Given that the company is a net beneficiary of higher coal prices, this could lead to a potential upgrade in our FV estimate." Mind you, COL is still rating SCC as a "BUY", meaning an upside of at least 15 percent in the next 6-12 months

Abacus - "Our sum-of-the-approach methodology yields an NAV estimate of P300.00/sh for SCC"

My personal opinion is very similar, although a bit more optimistic. With earnings growth forecast-ed to almost increase by 75 percent from 4 to 7 Billion pesos in 2011. It is no surprise that I see SCC having a huge upside. Maybe not as optimistic as the 300/sh but better than most brokers. At this price 2011, earnings would net a P/E ratio of less than 12. A very good number in comparison to other commodities and power play.

Trade Shows

I've been away from active real-time trading for the past three days due to the Worldbex convention in Manila. One thing I noticed about trade shows here in the Philippines is that people go to the shows for retail purchases. Abroad, trade shows are where big deals are made and quantities are set via containers and not individual pieces. It seems to me that no matter how much we push for world-class events, people can't seem to grasp certain ideas. I attended the show on the supplier side and in the two days I was there, there were no more than 3 people who I spoke to who had an active knowledge of the product I was selling. I'm not trying to sound arrogant (although I might come out that way), but it was just ridiculous. An event that was suppose to bring out entrepreneurship was instead made into another excuse to party (clowns, loud music, and women in skimpy outfits all around).

Going back to the market, from my understanding the week has been pretty eventful for followers of EDC, DMC, and SCC; three of my favorite stocks. From my understanding, DMC and SCC are benefiting from their soon to be members status of FTSE Asia Pacific Index. Although, I'm not particularly fond of stocks rising due to inclusions into certain indexes; I don't mind riding the wave on this one. EDC, on the other hand is coming off a double digit growth in profits last year due to their geothermal plants. I recently spoke to a number of investors and analysts recently and they all mentioned that although commodities may be the prevailing theme this year for most of the world. Locally, companies like EDC, AP, SCC, power companies in general are still poised to set the pace for growth in the long term. Mindanao has a severe shortage of supply, Luzon's reserves are below recommended, and in the Visayas you hear news of power generating barges moved from one place to another all the time. This just tells me that the next big player in the market, may already be a big player today, it all depends who's investing in the right places.

On other news, NIKL may have to scale back its growth prospects due to the recent earthquake in Japan. NIKL sells quite a bit to a Japanese smelting plant that was recently affected by the quake, and although damage assessment has yet to be disclosed. It may prove to be a game changer for NIKL if they can't find another client to pick up some of the shipment.

One After Another

Seems like we just can't stop getting one bad news after another. My heart goes out to the victims of the quake and tsunami in Japan. The Nikkei has plummeted dropping 6 percent of its value Monday and losing another 6 at the first hour of trading for Tuesday. Insurers are now saying that this may be the costliest natural disaster in history; and in an advanced economy such as Japan, I have no doubt that that may be the case. What makes it worse; is how local prankster seem to be getting a kick out of sowing panic with stories of radiation leaks, panic that has led to the closure of PUP campuses yesterday.

Recently, our market has been benefiting from an increase in net foreign buying. Foreigners have started showing interest in companies that have started becoming quite cheap, valuation wise. This has led to the market zooming past the 3900 mark quite easily and I believe we have started to form a new support level there, this may be a sign for us to start accumulating. I have done so by bottom fishing stocks like DMC, EDC, AP, NIKL, and AT.

First metro recently came out with a special report that mentions how the selling seems to have started to slowly bottom out and that we should see a resurgence in the bull market. Mr. Gus Cosio, mentioned in his new blow (www.guscosio.com) that the market may see itself through the 4200 level by the end or march. I wouldn't be one to be that particularly optimistic, but I do think accumulation would be a good theme for this month.

Corporate earnings have come out, showing that most of my favorite stocks have reported double digit growth numbers with DMC, MBT, SCC leading the way. I made a pretty regretful mistake by selling off quite a large position of SCC, while I switched positions to NIKL and EDC. I have also recently taken quite an interest in ICT, I hope to come out with a more detailed entry on the stock when I've completed research on the company.

Green for a Change

I can't count how many times I've actually had fellow traders mentioned that phrase to me the past two weeks. "Thank goodness it's green for a change". So what's been happening?

Nothing much has changed in the broader international geo-political landscape; the ME and North Africa is still in turmoil or is heading there. Protests are still popping up despite repressive decrees and laws. And to traders, oil is still much higher than what it should be trading at today.

Locally, foreigners have been buying into stocks that I seem to like; especially SCC, EDC, DMC, etc. These stocks have for some time been under the radar of numerous local and foreign brokers and have been frequently mentioned by big-time brokers like Mr. Gus Cosio. These stocks have had good support levels and have held them when the market was dropping fast. They now seem to be picking up in terms of pricing. Valuation-wise, earnings and prospective earnings have made it clear that these companies have some more upside.

Some significant notes to make for each of these companies.

DMC - the government has released their lineup of PPP projects for the year, and although DMC is not expected to bid directly; it is to benefit from contractor work. Full year 2010 earnings have also seen an 89 percent jump and is poised to grow even more. Numerous brokers have mentioned that DMC is in line for a major re-rating of valuation.

SCC - coal prices have been steadily creeping up due to delays and adverse weather conditions in Australia. Calaca power plant is expected to boost earnings after major rehab finished last year.

EDC - while it has under-performed both the market and the sector. EDC has been valued by JP Morgan, ATR Kim Eng, First Metro, BPI, COL, Deutsche just to name a few. It is expected to outperform this year with a trend in green energy putting a premium on its value.

Switching Sides

The local market has been outperforming peers lately and buyers have overwhelmed sellers as of late. I was very much surprised with some of my favorite picks, such as AP, DMC, EDC, MBT, and SCC. They have all outperformed the index and have performed very well near their support levels (some have even broken through multiple resistance). I, however, am inclined to steer away from my usual favorites in power generation, holdings, and financial; and have started to closely monitor the mining industry.

The mining industry is favored by a very large group of investors, simply because of the high risk/reward these companies can generate. Take PX for instance, I remember purchasing some shares for 3 pesos and added to it at 6/sh, when MVP decided he wanted a slice of Philex, the stock shot up to 19/sh in a matter of months. Of course, there were others who decided that it was worth so much more and lost money when the price dropped to 14/sh. Now, this was an unusual case of speculation driving prices. I am not advocating buying due to speculation, I am simply showing how the risk/reward balances each other out in the mining industry.

I am still a strong advocate of investing in companies with strong numbers (fundamentals). The reason I have started to look into the mining industry is that the rising prices of commodities is happening all around us. Copper, Nickel, Gold, etc; their price action just cannot be ignored. Take for instance electrical wires, prices have shot up more than 60 percent in less than a year; the most basic commodity used aside from the insulation is copper!

A few things to remember with the mining industry.
1.) Profits are very much reliant on commodity prices
2.) Shipments come in bulks and they have to be consistent
3.) Resources are finite.

All these things play a part in determining the profitability and attractiveness of the company. Recently, I've been looking into AT, PX, NIKL, and SCC (obviously). These companies have proven track records of shipment and commodities they mine are in demand worldwide. But don't take my word for it, do your homework.

Revolutionary Thoughts

It's no secret there's trouble brewing everywhere in the middle east and north africa. In the past, governments have found it easier to suppress dissent and maintain a tight grip of power by abolishing freedoms most of us in democratic countries consider inalienable. Tunisians, Egyptians, and Libyans are merely expressing pent up discontent from years of repression. So what form of problems will the latest, Libyan crisis, bring to our shores? OIL!

Libya hold's Africa's largest oil reserves. Recent spikes in oil prices have shown how important Libya's reserves are for the rest of the world. A disruption in supply may occur due to a lack of a coherent organization or leadership in the Libyan opposition and this has only been increased by fears that a power vacuum will come out of this once Ghadaffi steps down or is overthrown. Locally, this affects us in many ways. Oil is a commodity countries cannot go without, in comes as no surprise that Asian countries already feeling the pinch of an increase in food prices (ten percent in China for 2010 alone) will have to deal with so much more inflationary pressures.

In the PSE, stocks taking a beating from an increase in oil prices are airlines, commodity dependent stocks, and oil-based power generating stocks. With so much uncertainty on where the next major revolutionary crisis may happen, its best to take stock of your individual portfolios. There is a need to re-balance, cut losses on occasion, and move to liquidity in the worse case. I'm bullish of our 2011 prospects, but bullishness gives me no excuse to turn a blind eye to the bloodbath (metaphorically and literally) occurring everywhere else. I have re-balanced my portfolio to have stronger, less commodity dependent stocks as the majority of my holdings; DMC, EDC, MBT, SCC, and UBP constitute around 70 percent of my current portfolio and I don't intend to change the mix any time soon.

I received a report today from a friend who has a Citisec account. In the report, it states that the 2010 full year earnings for DMC have beaten consensus estimates and Citisec's own. DMC's total 2010 earnings increased 89 percent to an 8.85 Billion Pesos. Higher than COL's estimate of 7.57 Billion. Earnings for 2011 is estimated to increase to more than 10 Billion and that has decreased PE ratios to an estimated 8.7; a significant discount to the 14.1 average PE of other conglomerates and 13.8 of the PSE.

Despite DMC's amazing price movement in 2010; we can look forward to a even brighter 2011 with the expected IPO of DMC homes and the still discounted price that it is currently trading at. Citisec has stated that it's pricing is up for review considering that DMC's mining unit is benefiting from the sudden spike in coal prices and I am even more confident after an investor's briefing hosted by First Metro reiterated its confidence in DMC. As one of their most senior analyst stated, "I love DMC, its got a huge upside".

My personal opinion still stand, FYI, I would be a buyer of DMC even at 40/ share

Positioning to outperform

A number of traders I know have begun to think that the market has started to bottom out; as a matter of fact, just the other day "The Inquirer" has an article that says an economist figures that the sell-off would be over by March and that foreigners would be buying into the market soon. I would like to think things are looking up, but I just can't seem to find the confidence to put my money back into the market. As soon as I realized that the month was going to see a steady outflow of investment, I unloaded a good amount of my portfolio (20-25 percent) and reinvested it somewhere else. I would likewise wish for everyone else to exercise the same amount of caution when investing in equities at this point. I would like to emphasize that I am NOT changing my long-term views on the market, which is that we are in the middle of a bull run.

I remember some traders commenting that the past two years, the market was all about one direction; up. Today, we have to be selective in what we buy. I would like to disagree with that statement, in my humble opinion I believe it has never been about putting your money in any random stock. By doing so, we end up gambling, we might as well head to casinos. I'd like to think people who assume that is the case, have just decided to not do their homework and ride the bull market by putting into random stocks and chasing tips.

The way I look at things is that we have to constantly position ourselves to outperform. To outperform there are a number of factors we have to look into. Low P/E's, good growth in earnings, liquidity, good comparison to sectoral and index averages, and of course a company that gets the foreign brokers interested. Some of these stocks, I have already mentioned before; companies like DMC, EDC, SCC, MBT, AP. These companies are poised to outperform the market soon, once all this negative sentiment passes. I would put my money on it; oh wait, I already have.

A red valentine's

So after yesterday's brutal session, my paper losses have amounted to close to 7 percent and I believe it would have been more if i had not chosen the choice to cut losses or have invested in fundamentally worthwhile/strong picks. Mr. Gus Cosio of first metro mentioned in his blog that the next support might well be at 3620. I, however, am one to hope that it does not go that far. Today, the market closed higher by ten points; a mere ten percent of the 100 point drop of the previous day. I believe that this may be a longer than expected weakness in the market. First off, funds have to stop selling and next we have to get over our fear of buying into the market again. How long this may take is obviously something I cannot say. My long term views of the market remain unchanged though. The numbers; EPS growth, low PE ratios, strong economic numbers, etc are all pointing to good corporate valuations.

Things will probably get worse before they get better. Remember wise men would say "This too shall pass". Before then, enjoy a red Valentine's Day!

Seeing red

I assumed incorrectly that the market has already bottomed and that we would be trading a range for a while. It seems the correction has some way to go. Nevertheless, I would rather stay optimistic and invested in my favorite stocks for the time being. I have already begun to decrease holdings in some companies that I believe are weaker fundamentally.

I am, as of writing this entry, down by almost 7 percent and to be honest, it has started to upset me a bit. I, however, am still in the opinion that the market will bounce back stronger before the year ends. I received a report from citiseconline yesterday, describing the market environment and why we should stay invested. The reasons for the sell-off have nothing to do with speculation and investments gone bad; on the other hand, its got everything to do with hot money movement and that investors are simply taking what they have earned the past year or soo. I would like to believe that is the case. Fundamentals are generally strong in companies i have recently favored and I am in no rush to sell due to speculation, etc.

Some companies that I have recently shored up position-wise include EDC, SCC, DMC, MBT. I am in the opinion that although these stocks are badly battered, they give us a very good and strong upside.

If in any case the losses are too much to bear there are options; cut losses, send it over to a mutual fund, and of course... turning your pc off for a couple of days. I recommend the latter, I have not done so myself yet though.

DMC!

DMC or DMCI Holdings, Inc. is a company established by the Consunji family to incorporate all their interests in different businesses; which today includes construction, real estate, mining, power generation, utilities, etc. The company was incorporated in 1995 and it has shown tremendous growth in both share price and value in the past couple of years or so.

There are a number of reasons why I enjoy trading DMC. Aside from its high growth over the past year (close to 300 % in 2010 alone), its companies have also managed to sustain a very good business model with growth being engineered in each company for the next few years.

Take for example Semirara; the only listed subsidiary, DMC owns 50+ percent of. The company is poised to almost double profits this year due to the coming on-line of their Calaca Power Plant and the higher prices of coal (unfortunately, due to cyclones in Australia). The price of this stock has grown exponentially from a 40 range last year to the 200 range this year; of course, with more room to grow.

Maynilad is 45 percent owned by the DMC (55 percent owned by MPI), the company has a relative monopoly of the water distribution in some parts of MM. With planned spending to improve their efficiency, the company is set for higher profits in the next few years or so.

Their construction arm isn't doing so bad as well; with 48 billion pesos worth of backlogs in construction contracts, up from 2 billion two years ago.

Another interesting thing to note about DMC is that another one of their subsidiaries is planning a IPO this year, namely DMCI Homes.

Putting all that I have mentioned above together with the fact that DMCI is still trading below the sectoral average for PE ratios in holding companies and its poised for higher EPS growth than most other companies in its sector. I believe DMC is trading at dirt cheap prices at this point. I mentioned before that even at 40 pesos/sh I would be a buyer of DMC. Today though, the price of the stock has garnered support at the 32 level and its been trading a range between 32 and 35. If patience is not one of your virtues, I do suggest trading that range. But trading the range of this company is by no means a sign of my lack of confidence in this companies growth potential.

Interpreting Data

This week was quite an eventful week for everyone following the local market. beginning with a nasty bloodbath in the first two days despite our economy growing at its fastest pace in more than 30 years. A nice rebound happened on Wednesday and the index ended flat on Thursday with advancers evening out decliners. We have one more day to go this week and already its been a pretty crazy week.

So how are we expected to react to mixed emotions of foreign traders despite the better than expected results of our economy? With reserved optimism. The numbers have repeatedly stated that our economy is moving at the right direction and corporate results will mirror that soon enough (especially when the 4q earnings are released). I have not changed my sentiments regarding the direction of our market simply because there is no reason to.

On to individual stocks:
SCC- I received a report today from a local trader. The report was made by Abacus and it stated that its 12-month target price for this company is 300/sh. Natural disasters in Australia have repeatedly driven the price of coal up. Despite Australia being the number 4 or 5 producer of coal, it is the world's number two exporter. As of 2009, it handles almost 25 percent of cross-country coal trading. The flooding and cyclones in Australia have driven prices so high that, according to the report, SCC has already been contracted to deliver coal at double the average price of 2010. After the Calaca power plant's recent rehab, SCC's power generating arm is expected to contribute even more to the company's earnings. Potential downside that may affect the price performance include; a prolonged rainy season, sharp decline in electricity prices, and a sudden/unexpected shut down of the Calaca plant.

UBP- With two foreign brokers downgrading the company from a buy to a hold, most investors would probably worry on its potential upside or lack of it. I, on the other hand, would not. UBP has recently announced a 2.5/sh cash dividend in a TBA date. A more than ten percent increase from its previous dividend payout, this is a company that is giving back to its investors 30 percent of income last year. It may not be as widely traded as other financial stocks dues to its lack of liquidity but in terms of a strong base and a low downside risk, this is still one bank I'm willing to bet money on. UBP has continued to outperform most other financial stocks in terms of earnings growth and it is expected to do so again this year.

EDC- It has come to my attention that EDC is a pretty well sought after stock to own by foreign brokers. A trend has emerged lately; responsible investing, namely green energy. EDC is the operator of the Philippine's largest geothermal power plants (a renewable source of energy). With only three countries in the world with the expertise and technology (Iceland, The Philippines, and USA), the fact that we are closest to the pacific rim gives EDC a significant advantage in exporting this technology. EDC has recently concluded a 300 million dollar bond offering, despite the fact that it has no debt to service and it has a healthy cash flow. This most likely indicates an upcoming project or joint venture. I had the great opportunity to meet the president of FAMI, Gus Cosio, and in our talks he mentioned that he shared the same sentiment on EDC; foreign brokers, due to its drive for socially responsible investing, will look into EDC more closely. It also helps that EDC is the least battered among the major power/utility companies trading in PSE, a sure sign there are buyers at a number of strong support levels.

Chaos in Cairo

Protests in Egypt have already amassed quite a following, with an opposition figure, in the form of former IAEA head Mohammed ElBaradei, ready to take charge and unite the fragmented group of critics of the current Mubarak regime. Investors are worried that a scenario which sparked the first crisis in Tunisia, will eventually happen in Egypt and spread throughout the ME region like a domino effect. Already, a smaller copy cat situation is happening in Amman, Jordan and it has not taken an expert geo-political analyst to realize that this may have a destabilizing effect on the region as a whole.

The Philippines, from my understanding, has very little trade with Egypt. With less than 7000 overseas Filipinos in the country, remittances are not exactly affected all that much by troubles there (specifically). So what's bothering the market today? Basically, its the fact that a destabilizing effect in Egypt may cause a domino effect in the region; locally the implication has no immediate effect but considering billions of dollars are pumped in through remittances from the millions of OFWS based in the region, we have quite a bit riding on the well-being of the region (in general).

With troubles abroad, my main concern today and for the past few weeks, is the health of the market and our economy. I see our government is releasing its 4Q GDP data today (I previously stated that it would be last week, I apologize for that mistake), and with the market being battered heavily these past few weeks a good GDP number would be a breathe of fresh air at this point.

As I'm writing this, a number of my favorites are taking a beating. DMC, EDC, MBT in particular. Recently, I received a report from a foreign broker that raised its price target and rating of MBT from buy to hold. This is due to higher expected earnings in 2011 and a lower PE ratio due to the recent beating MBT took. At its current price of 64-66, I would like to post my fearless forecast of this stock reaching the 80s level within a 6-12 month period. Lets just hope this whole fiasco in Egypt boils over soon.

Sticking to my guns

So the PSE had a pretty decent rally yesterday, although I think it was more of a case of bargain hunting than a real rally spurred by investor optimism. Value turnover yesterday was not as much as you would have expected from the 3rd-4th quarter of last year.

The market has been mostly red today and I think the trend will be more or less the same for the next couple of weeks or months. The government will be releasing GDP data for the full year 2010 tomorrow, with economists expecting the government target to be breached by at least a full percentage point. If the data indeed touches the 7-7.4 percentage mark or goes higher than that, I expect the market to react with frenzied buying tomorrow. There may be a downside due to the bombing in Makati and the subsequent reactions people usually have after an event like this.

With all this volatility in our market, I see it as a great buying opportunity. I've started to slowly accumulate some of my favorite stocks, with the expectation that our market will bottom out soon enough and trade at a certain range. I have my eyes set on companies with solid fundamentals with a premium put on growth prospects; AP, DMC, EDC, MBT, SCC,and UBP. These companies have taken a beating and have been, in my opinion, oversold for some time now. I'm looking at these stocks and with numbers like the ones they do, I would rather slowly accumulate and stick to my guns. "You can never keep a good stock down"

Portfolios and the pain in having them

I just got off the phone with a friend of mine asking me how I felt during the last financial crisis; the tone of his voice suggested panic and I can understand how a lot of people may feel that way. I received 5 phone calls today; two asking if they should cut losses, two asking where I see the market going in a couple of days, and one asking if it would be a good idea to invest in bonds instead.

I can't exactly tell where the market is going in the next few days. But what I do know is that our macroeconomic numbers seem solid enough. A lot of investors, look towards gains in a matter of days/weeks. I would suggest a more fundamental/long-term approach towards stock trading if you start sweating everytime you turn on the monitor. One way to digest all this is to look for your personal comfort level. It may be the percentage of loss you are willing to take before cutting losses or even buying into more solid companies and just leaving them unmonitored. Whatever it is, take comfort in your trading strategy, one that you've developed for yourself.

It may seem painful enough to have to go through seeing your portfolio turn from green to red at this point but truth is, if it was that easy then everyone who's in the market should be a millionaire by now.

Mood Swings

I'd like to think that with so much volatility (not uncertainty) in the market it would be prudent and wise to actually consider having cash on the side. I'm not talking about selling EVERYTHING at a loss nor am I telling you that my views of the market have made a complete 180 and I feel the market is going south in the long run. On the contrary, what is happening with our market is a healthy, although prolonged, period of consolidation/correction; which to me is more of a signal for buying opportunities.

Some people have considered range trading and although I am not entirely against that strategy. It would not be something I would recommend to the faint of heart or to those who do not have time to monitor market action. There are a few things I would suggest that can take the edge off the anxiety. These may not be overnight solutions but in the long run, this can be beneficial to your overall trading strategy/nerves.

1. Do YOUR homework! The reason I capitalized YOUR is because a lot of us simply read one or two reports/blogs/forums/whatever else and conclude that this is either a buy/sell/hold. That is not your homework not by a far cry. It is someone else's and you have simply tagged along for the ride. What numbers are you comfortable with? Does the company have those numbers? What kind of business is the company engaged in? Do you have any idea how these businesses are run? What potential risk/rewards can you get from this company?

2. Set aside some cash. If you don't have any at this point, it's fine take comfort in knowing that you've done YOUR homework and that the companies you have done research in are good solid companies that will bring results in the long run. If you have not done your research, it's a lesson to be learned. Forget it, move on. Hope for the best and cut when you can't take any more.

3. Keep in mind value and price are two different things. Determine the value and buy at a price.

4. Emotions. I've been an avid reader of Mr. Gus Cosio's blog ever since a friend of mine introduced me to him and although my views may not necessarily toe his line all the time. I am in agreement with how he describes emotion in the stock market... your enemy.

Recently, I've been told by a friend of mine that he's been holding on to one particular company for quite some times, DMC. It surprised me more than anything else how quick profits have changed views of certain people. He imagined a long-ish hold to be a matter of months. Quick profits changes people's perspectives. Again I am willing to stay bullish with this particular company, DMC. It's got good growth potential with a diversified portfolio ranging from construction, real estate, mining, power generation, utilities. The numbers provide for a very convincing buy; low PE ratio, EPS growth over the past years and consensus estimates' for the coming years, good dividend policy, and much more. Intangible factors provide for good investment as well; management, potential IPO of subsidiaries, etc. So I'm very comfortable staying with DMC. Its currently trading at 33-ish not bad for a company I've previously said "I would be a buyer even at 40". But hey don't take my word for it; do YOUR homework.

Taking advice

I remember when I started trading a few years ago, just when the stock market was peaking in 2007, I invested in four companies that i thought made sense to me. MBT and BPI simply because I have been a client all my life and that they seem to be so high up there that nothing could possibly go wrong. I invested in MEG just because buildings were rising everywhere with "MEGAWORLD" on its banners. Lastly, I also invested in COAT, back then i believed COAT was one company you cant go wrong with due to its push for biodiesel as an alternative to fossil fuels. Buying them was of course an advice from a person who said "buy into a company you are willing to own". Although I did not hold on to these companies for long, I think it's quite obvious how my lack of preparedness for the stock market cost me quite a bit. I bought my first stocks on expectation that they would grow without any fundamentals to back up that idea.

After trading away all my first batch of companies, I decided to chase tips (the norm just when the index was about to crash). Friends were telling me to buy PA, BEL, etc, etc. Companies that made no sense to me at that point not because I knew their numbers were bad, but because I didn't have the numbers when I traded them. And just when we were starting to make progress, the crash happened. Everyone seemed to be in panic mode and again I was left with whatever I could salvage (which at that time, was 50 percent of what I started with). All this was again from people who advice-d me to do this or that.

Now I'm not here to blame people who have given me advice and have left me losing money. If there's anyone to blame it should be myself, I jumped right into something I have no understanding of. I believe I learned from that episode and have managed to incorporate that perspective into my trading strategy.

The reason I mentioned all that was because of the recent price surges in companies that have laid dormant or have underperformed the market. SMC, PCOR, CYBR, etc and I have absolutely no idea why they are moving as fast as they are. I don't understand how a high PE or low-growth potential can make a company attractive to an investor. And unless I can justify investing in them, I don't see why I should. Although it has been tempting to ride the wave its just counter to all the rules I've managed to establish for my trading strategy. I imagine some of these companies' followers have their reasons to invest in them and I congratulate them on their earnings, but buying into something I don't quite understand just doesn't sit right with me anymore.

There were two lessons that I learned from my stock market crash experience.
1. Establish rules for yourself and don't compromise
2. Take every advice with a grain of salt

Those two lessons have helped me rebound from my losses and have earned me a more than substantial return in the past 2-3 years.

On another note, SCC has surged above the 200 mark and is now currently trading at a 210-214 range. It must be noted that this company is expected to post a substantial increase in profit due to its Calaca power plant project coming online for a full year. Both Citisec and First Metro believe the company will post a more than 80 percent increase in profit in 2011.

Macros

When the market drops close to 200 points in a matter of two days, it gives you time to pause and consider your options. A lot of people are in the opinion that a bigger consolidation, one that will drive the market to below 3800 is looming; others are saying that the market cannot go further south and its a great time to buy; while others are right in between. At this time, I see no reason to put all my eggs in one basket and I would rather set aside some cash.

I am in the opinion that the bull run has not run its course and that what we are currently going through is a mere speed bump. The macroeconomic numbers point to a great deal of optimism in our current environment. Net money inflow in 2010 has grown 1000 percent compared to 2009, remittances continue to come in in greater volume, and our economy may have grown an estimated 7 percent this year (one of the best numbers in the fastest growing region in the world, Asia). So what does this mean for us, those who have invested in equities. Strong economic fundamentals will eventually translate to better corporate earnings as companies try to keep up with consumer demand for goods and services; whether it be food, electricity, prepaid cards, or banking services for their hard earned money.

Just recently, I managed to cash out on SCC and MBT when it hit new highs at 195 and 75.05, respectively. And now my strategy seems to be paying dividends. I managed to re-enter both at an even cheaper price and am currently in a stronger position compared to say a week or two ago. I am still in the opinion that both these companies have some way to go with SCC looking into developing its 600 MW brownfield project (with work expected to start in late 2011), increasing power generating capacity by 200 percent from its current 300 MW. MBT's 52 week high was 81 that's a good 20 something percent from today's closing of 64.1 pesos per share. Bear in mind, MBT is a sectoral leader (#2 Philippine bank in assets).

I've also recently began to study EDC and I have acquired a position in the company since it traded at 4.9 pesos per share; the stock has been trading between 4.31-6.55 the past year or so and has a relatively average PE ratio (average locally, low regionally). A lopez led-company, much of its power generating company is based on geothermal sources; so unlike other sources of energy it is unaffected by weather conditions such as El Nino, it is also unaffected by commodity price increase such as coal and oil. Besides the fact that it is is a green power generating company, this company seems to be very well-liked is because of the power supply shortage in the Visayas region. I know JP Morgan has set a TP of 7.85 and other brokers have set either a buy/overweight/or accumulate rating on EDC.

The banks of 2011

Philippine banks without exception have been performing better than expected for the past couple of years. MBT, PNB, UBP, just to name a few have outperformed the PSEi last year and are expected to do so again this year, with so many of them with still below sectoral average numbers. Another reason I seem to like banking stocks are for their consistent dividend yields (many, not all). There are two banks I'm holding on to for a bit UBP and MBT, and here are my reasons.


UBP, as mentioned before, is one of my portfolio's core stocks. Its dividend policy has been consistently 30 percent of net income of the previous year, which puts this year's to a minimum of at least 3 pesos, in comparison to last years. On top of that, the bank is aiming for a better 2011 compared to an already amazing 2010. Amazing, because it has outperformed a lot of analyst's estimates. ATR Kim Eng expected UBP to post a decrease in income, instead its 9mo performance has already outpaced its full year 2009 by around 30 percent. Other fundamental numbers such as a PE of 8-9ish, P/BV of 1.1x, a decent ROE, all of these below the financial sector's average. And since its an aboitiz company, I do hope that AP, AEV, etc's earnings trickles down to UBP. The only downside UBP seem to have is that its lightly traded for a banking stock, its off the radar of a lot of traders and big time institutional buyers.

MBT seems to be swinging up and down quite a bit lately. Maybe its the recent stock rights offering (SRO) or maybe its the general sideways direction of the market. Unusual, for one of the Philippine's leading banks. It reached a 52 week high of 80+ and dropped to as low as 62 after the SRO, it climbed all the way up to 75 a week or two ago and as i type this entry down its currently at 67-68. I purchased a few shares a month ago at an average of 64 and sold at 73 and 75. I am more than willing to enter MBT again after it breached the 70 pesos level and I'm willing to purchase more once it touches 65. My confidence in MBT is with its story, a leading bank with strong growth potential; very few of those in the Philippines or the world. Its fundamental numbers are actually decent as well; a consistent dividend policy and solid EPS growth. A number of analysts have estimated MBT to be worth at least 80 pesos.

The market seems to be trending downwards after a good week, I guess taking some profits from my positions last week is paying off. I've never been comfortable with such astronomic increases by individual securities or the index in general. I learned my lesson the hard way in 2007-8. Last year's 3rd quarter rally was incredible and it gave a lot of traders very little room to breathe and assess what was actually going on. I guess in the long run, this will serve as a very good lesson for people who have entered the market just recently. I'm still pretty bullish about 2011, but then again its always better to know when to strengthen your positions or go light on them.

A few stocks that I've been observing for quite some time: AP, AT, DMC, EDC, ICT, MBT, MPI, SCC, SMDC, UBP, URC, VLL! Happy reading guys!

Buy and Sell

One of the most frequent questions you will ever hear newbies ask is when to buy or sell. I always end up answering, "When you're comfortable and ready". That seems to get me more questions, they usually start with something like when should I feel comfortable selling and buying.

There aren't that many stocks being traded in the PSE, as a matter of fact I believe there are around 300 securities being traded and only so many with a daily average value turnover of more than 5 million. I actually find this to do more good than bad; with only so many securities that can possibly generate some interest, It gives you enough time to study each one.

What am I driving at?I am comfortable buying a share after, and only after, I study each stock and see if this company would be a company I would want to own or invest in. How far they have gone in the short/long term, how much more upside it has room to grow to, what kind of business are they engaged in, and what are their numbers like compared to other companies in their sector. Questions like that help you determine the actions you'd like to take. Imagine yourself sitting in the boardroom of the company and after careful review of all their number past, present, and future; you are still comfortable being there, then you should probably consider buying or investing.

Now as to the strength of each position, and when to increase or decrease, that's a whole different matter.

So what have I been checking out, aside from the obvious SCC and DMC. I've never been quite a fan of real estate, but VLL has continuously struck me as a company I wouldn't mind holding on to, sit on it, and wait for price to equal its value. Its book value, circa 2009, was rated at 4.37, a more-than 25 percent upside in my opinion and that hasn't even taken into consideration its immense land bank, property price growth, income/sale of 2010, etc. The stock has traded 1.54 and 3.68 the past 52 weeks and @ 3.19 today it seems like its got room to move. With all the re-rating by foreign brokers, it only seems more likely that the stock will keep on increasing in value.

Cutting Losses

SELLING AT A LOSS! A lot of people hate, dread that phrase. Some won't even consider the option. And there are those that simply start hurling criticism your way once you try to explain why you do it.

Don't get me wrong I'm not what you call a "tsupitero", swing trader, day trader, whatever. I believe in a company's value but with faith in its value, I use prudence to increase, decrease, or maintain my positions of it. I have on occasion, although rarely, sold at a loss. I have my reasons; either to increase my cash positions to take advantage of an ongoing consolidation/correction, to increase my position in a stock that has gained momentum that is in accordance with my own research, etc.

Imagine a situation when you own 1000 shares of a company, purchased at a price of a 100 pesos; the company along with the market as a whole starts decreasing in value to a point that you've already lost 20 pesos per share, and with the possibility of losing more. To decrease my chances of losing more money I sell half my positions and buy back at a lower price, say 60 pesos. Not only have I stopped the bleeding for one half of my positions, I am also in a position to buy more shares than I initially had to start with. When the market recovers, I am in a better position to take advantage of the value of the company. So why don't I sell everything? Simply put, I don't want to be left behind when something crazy happens. Does all that mean I have no faith in a company's value but only its price? I don't think so. The mere fact that I continue to be persuaded to buy into the company is enough reason for me to be a follower of its value.

Today's market action saw SCC go to a high of 194.50 and settle at a comfortable 189.50, breaking its 187 resistance quite easily; DMC, likewise, moved to a high of 37.2 and ended at 36.5. Both these companies were in the top ten value turnover list for today with SCC having almost 400 Million worth.

I received a report from Citisec on both these companies today. Although a couple of months late, they rated DMC to be worth 33 per share and SCC to be worth 195 pesos per share. First Metro has rated DMC to be worth 41 per share and SCC to be worth 199 per share, close to my estimates, but not quite close enough. In my previous posts, I mentioned that both these companies are worth substantially more than they are currently rated at or are stocks to watch, and I continue to believe so. Each of these companies are worth so much less than their peers in their corresponding sectors and economists continue to project an increase in corporate earnings for SCC and DMC, better than the sectoral averages. I can't say for a fact that these companies will project 200 plus percent growth like they did the previous year, but one thing for sure, upside is still there.

SCC... miner and power generator

Semirara Mining Corporation (SCC) has been one of my portfolio's favorites for some time now. The company started off in 1977 as a coal mining company and has since transformed itself into a power generating firm as well; fed by the same resource they mine. DMCI took over in 1997 and has been publicly traded since 2005. The price of a share has grown 270 something percent and as of today is trading at 183.80 pesos per share.

Some of my friends who have been trading for some time know that this stock is something still worth looking at. First Metro has rated its NAVPS to be worth 199 pesos, I disagree and believe its worth more.

The first 9 months of 2010 saw earnings grow from 1.8 Billion Pesos for the full year 2009 to 3.2 Billion Pesos with one more quarter to go; 2011 earnings are estimated to smash all of that and be worth around 80 percent more with power generation making up majority of income. Power generation is not something SCC has been historically associated with; back in 2009 it contributed nothing to SCC's income, 2010 it's estimated to contribute 1/3rd, and in 2011 it's supposedly expected to contribute 2/3rds. That being said, with First Metro's forecasted earnings for 2011 to be worth 6.5B pesos, I've estimated its 2011x PE ratio to be around 10 with today's share price.

So what have I been doing with SCC? I've been purchasing and holding since it was 140 pesos a share and I have continued to do so. Do I think it has some more room to grow? Yes, I do.