Thursday, February 24, 2011

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

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