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
Thursday, February 24, 2011
Thursday, February 17, 2011
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.
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.
Thursday, February 10, 2011
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!
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!
Wednesday, February 9, 2011
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.
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.
Tuesday, February 8, 2011
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.
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.
Thursday, February 3, 2011
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.
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.
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