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.