TEL

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MPI

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Metro Pacific recently expanded to hospitals and schools.  Although net income is at a sluggish growth of 2% yoy (2nd Half 2010), its Revenues increased by 18% to P8.86 Billion.  With ROS of 35-40%, MPI remains to be a good investment in the long term.  MPI trades with the Philippines Stock Market

Times like these... you need AIG!

(http://farm4.static.flickr.com)

Phisix sinks 4.26% again

It's Valentine's at Philippine Stock Exchange. You don't need to look at individual stocks. Looking from afar, you will immediately see the red numbers, indicating that stocks are down.

Applying the contrarian principle again, we see that most stocks are worth a second look now. Take the case of Megaworld. It closed at 1.50 last week. This day, it fell to 1.30. Now, the income of Megaworld last year was 0.152 per share. Last June, its accumulated income for the year was at 0.09 per share. If this trend continues, it will end the year with a 0.18 per share income.

Usually, companies trade at 15 x the eps value. Using this simplistic formula, Megaworld should be trading at 2.28, given a flat income this year. But, since it is currently posting a growth, it should not be trading lower than 1.80 (at 10x anticipated eps).

When to buy then? If I am purely considering fundamentals, I will buy now. But, since we are also considering technicals, the right point to buy may be a little tricky. Right now, the market is trending downwards. Either we ride the trend all the way down to its rock bottom, or plunge in the market when there is a greater probability of rise. I think, it is still best to await the third quarter data.

(Image above is from (http://www.thedigeratilife.com. It was taken almost three months ago. Today, is gloomier.)

Chapter 11: Of Financials and Free Fall

Lehman brothers filed for chapter 11 bankruptcy. It was still trading at US$15.00 per share 11 days ago. It is now trading at $0.30. Care to buy Lehman for US$206.7M?

Major holders include some of the biggest mutual funds and financial companies all over the world.

Lehman's major holders include the following companies (figures inside parenthesis are their holdings valuation as of June 2008):

1. AXA Life (US$1.3B)
2. FMR (US$783M)
3. Clearbridge Advisors (US$776M)
4. Barclays (US#539M)
5. Fidelity Diversified (>US$420M)*
6. Vanguard (>US$452M)*

* represents mutual fund exposure

In the Philippines, Metrobank, BDO, RCBC, and Philam Life are some of the companies associated with Lehman. Already, the market crashed 4% yesterday. This day, it inched up 1%.

What is peculiar about this resort to Chapter 11 is that Lehman seemed to be in good shape. In March of this year, Citigroup researchers even upgraded its recommendation for Lehman from Hold to Buy. Its report for May 2008 however, registered a loss of -5.14 USD per share. Four months later, it filed for bankruptcy.

Lehman's financials appear to be fine. It is even awash with cash (US$540B). However, what really troubled Lehman is its debt. It has a standing obligation in excess of US$350 B. Debt to equity ratio is at a staggering 13 to 1. With this, and a falling income statement, there is really nothing else to do but file for bankruptcy. Lest it bleeds to death. In the end, it would have been wiser to show the real color of the financial statement, rather than prolong the agony.

Financial sector is being shaken by a meltdown. Since the financial sector is exposed in every major industry, the grim face of the world market is understandable. The 1929 Wall Street Crash was brought about by too much optimism, driven by the loose lending policies of commercial banks. When the average P/E reached 32 or so, the pressure was too much. Eventually, realism found its way back into the minds of investors.

Now, if this is a recession and a start of a bear market for US (and the rest of the world), it started with the housing sector free fall. Lehman is exposed in real estate. The latter's failure to move up, overextended Lehman. Too much optimism again. AIG now needed an 85 Billion Dollar bailout to be able to continue doing business. Merill Lynch needed a buyout from Bank of America.

For an ordinary investor, the only thing that is still making me smile is the fact that when the World Trade Center crashed in 9/11, world markets fell. The Phisix went to as low as 999.79. Meralco traded at 6. PLDT was at 300 or so. Now, these stocks are trading at 10x those values.

All these things will pass.

My namesake, George Soros, once said that we have to be a contrarian. The market is always wrong. If it is selling, we have to buy. If it is buying, we have to sell. He earned a billion dollars overnight as the British pound fell in 1992.

The best principle is still fundamentals. We have to look at the financial statement of a company before buying it. If you are AXA, how can you sell 1.6Billion Dollars worth of Lehman? Hence, Buffett buys for life. Even if the markets close for ten years, he would say, I can still wake up with a smile. Because billions of people around the world wake up, shave with a Gillette, and drink Coca Cola.

Technicals principle: Do not ride the bearish market all the way down. Sell now, and buy later. Well, you can do this if your exposure is very low. Have I exited the market? Not yet. I will, tomorrow.

Sleep principle: Sleep peacefully, because BPI will still be banking strongly in the Philippines, Filipinos will still use electricity and water, and communicate using Globe, Smart, or PLDT. And yes, barkadas will still drink San Miguel, and eat out at Jollibee.

I sleep in peace. But, I still read the Business Section. Like crazy.

Phisix (September 12, 2008)

Phisix dropped to 2646.12 this week from 2724.72 last week (2.88%). Most stocks went down, except for San Miguel Corp (SMC), which posted a magnificent increase in income last quarter. In fact, based on fundamentals, SMC is still number one, for being most undervalued, that is, compared to its income performance. For my part, I would like to see first the 3rd quarter earnings of SMC. After all, with the current run, it may be in for a correction this coming week.

For the composite index, the downtrend is seen in the MACD, Stochastic, RSI (measure of strength). Based on the latter, we can surmise that should the downtrend continue next week, it is still to far from oversold levels. Oversold levels is at 25, where usually, the market reverses. Current RSI is at 45.11. Moving average seems to indicate a correction, because long term still points positively.

Companies to watch out, based on fundamentals are:

1. SMC
2. SMC B
3. Philex Mining (probable uptrend in excess of 150%, long term given positive income continuity)
4. Vista Land
5. RCBC

With the downtrend of SM, it became a company worth watching. It has an uptrend potential of just 20%, but its continued weakening can pose it for a fundamental buy.

For my part, I am looking at Aboitiz Equity Ventures and Megaworld. Any of the two can be a good buy, given good income results this end of September.

Ayala Corporation (AC) moved up a notch in the stocks list of good buys (from 14 to 13). It is still 24% undervalued.

(Image is from Yahoo! Finance)

Phisix (September 5, 2008)

For this week, the Philippine Stock Index closed at 2724.72, up from 2688.09. Though it suffered a correction last Friday, moving down 1.065%, both MACD and RSI points to a positive direction. The 25-day average is beginning to move up, nearing the 75-day average. In Risk Investing Theory, this is the mark of a buy in the general market. When the market bounce back from a downtrend, usually the 200-day average (long term) is higher than both the 25-day (short term) and the 75-day average (intermediate term), where the short term is lower than the intermediate term. When the market starts to strengthen itself, the 25-day average is the first one to move up. By the time the 75-day average is overtaken by the 25-day average, it is already a marked bull run.

Hence, it is better to invest before that happens. The caveat there is the continued oil crisis at home, and the weakening peso. When the 3rd Quarter numbers come out, this bullish sentiment will be confirmed. The best thing to do now is to invest in a balanced mutual fund. While doing this, we must look for companies to invest on, using fundamentals. This can be done using the Quarterly data of September. Usually, the companies with the highest positive variance over the same data from last year are the ones that should be considered for investment.

Business bits (week ending September 7)

(Image is from finance.yahoo.com, showing a 2-year chart of the USD-PHP exchange rate. Currently, the peso is at a year low)

Inflation registered at 12.5% in August. Last year, it was merely in the 3-3.5% region. Likely results may be a further decrease in the purchasing power for our salaried workers. A further increase in the incidence of poverty naturally follows. For the business people, this may mean a continued brand-shifting because of price considerations.

Education sector was clearly hit by the economic slowdown. A few years ago, the trend for tertiary education is 60%-40% with private schools being favored over public schools. That means, parents chose private education 6 times out of 10. Now, it is the other way around.

For entrepreneurs, the hardest hit will be the small and cottage industries. Some of the lower-end medium industries will also collapse, if this trend continues. On the part of employment, the direct result is the increase in the unemployment rate, which is already at 8.0% in April 2008 (See attachment on unemployment data from 1999-2008, from the website of NSO) Together with this, an increase in the crime rate looms.

Employees belonging to the middle class might think twice to venture to start their own business, or to change employers at this time.

A salary below 15,000 a month escapes poverty only if the one receiving it is a single person. The poverty level should again be readjusted.

Hopefully, the trend will reverse when December comes. I think that even though times are hard because of the oil problem brought about by the Middle East Crisis, corporate Philippines is still doing well. Banks are resilient as ever, and manufacturing sector is still on top shape, increasing at 9.3% in value (June 2008 data) from last year. When the crisis abates in the Middle East, hopefully after the US election in November, things will start to turn positive at the turn of the year. December will probably be a better time for the market since the peso is at a year low now. We expect peso to strengthen a bit when the remittances from our OFWs peak in December.

Let us just hope that the Republicans lose, or if they win, that they still pull out the US soldiers in Iraq, for fuckin' chrissake. That will somehow pull the oil prices further down.

Phisix (August 29, 2008)

The Philippine Stock Market Index closed at 2688.09 last Friday. It is up from 2653.18 last week. Although long term is still uncertain and mostly bearish, the short term is starting to pick up. The 25 day average is up and went past the 75 day average this week. MACD line is going towards positive land, and RSI is also up.

For short term investment (up to about a month), this could be a signal to buy. For intermediate term investing (6 months to a year or two), the best thing to do is buy a balanced mutual fund, or find some good deals by searching the companies you are interested in buying. The same goes with long term investment. The data this end-September is starting to clear out, and will most likely be the data to anticipate.

I believe that most of the listed Philippine companies are very much resilient. I am looking at the Ayalas as usual, and perhaps Jollibee, SM, and Manila Water. Next blog, it will be the fundamentals of the said companies.

Hey, something is cooking on BPI-Trade. You can invest in the Philippine market for as low as P5,000.00. You just have to enroll your account with your branch. I bank online at www.bpiexpressonline.com and I pay most of my bills there. Of course, my advice is to study first before investing. It takes a lot of time to buy the right company, and only seconds to decide not to. That's Buffett. At his simple best.

Google. Back at one.

Google is numero uno! Best big company to work for. Rank number one.

This is according to the ranking of Fortune Magazine this year. Google is ranked 150 in the Fortune 1000, and gives stock options to 99% of its employees. Why is it number one? Read the previous statement. And add this: GOOG (Google) went past US$700 a share. Go figure.

Stronghold Game

This is the cover of the Stronghold Game as can be accessed here.  It was released in 2001.  One thing that keeps me up all night.  A strategy game set in the Age of Castles, one learns a lot from this.  Here are some of my realizations from this game that can be applied in life, and in managing companies:

1.  One cannot be too goody-goody.  When people are not afraid of the leader, the subordinates wander around.  They are not efficient, and can often be seen resting and being lazy.  One needs to be tough and fill the castle with "bad things" in order for people to be afraid of you.

2.  Religion cannot affect work.  I remember one office mate back in the 90s who would absent himself during devotional days.  He was told: "Duty first before devotion".  He filed for resignation.  

3.  To balance fear, you have to give them a lot of food (double rations).  Applied today, one must fulfill the lower physical needs (Maslow, Herzberg) in order for them not to leave the "castle".

4.  If they leave the castle, you have to either give them more food, or lower the taxes, even give them a little bribe to make them stay.  You can also give them entertainment (traveling fair, jester, marriage) in order to turn their minds away from the empty granary.  In present day companies, if one cannot give enough compensation, management can resort to entertainment - company programs, outings, team building whatever.  It can also resort to giving small gifts in order to keep key players/employees.  When things turn right, then go tough again.

5.  No matter how high the taxes, people will be happy if they have food, food, and food.  Fulfill the physical needs and then, tax them like crazy.  In the macroeconomic scenario, one can raise the taxes if the basic needs of the people are taken cared of.  This should be the priority of the government.

6.   The machines should be placed considering time and motion.  Else, the time required to produce goods will be multiplied.  Realization:  We need more (Industrial) Engineers.  We should listen more to the science of the experts.  Finally, we should study our production cycle.

7.  Everybody must be in their proper place.  We cannot have more quarrymen than we need.  We cannot multiply woodcutters aimlessly.  I am sure I am going to hurt a lot of people but here goes:  We cannot send all our children to Nursing because the projected demand we are contemplating (behind the background of 70-80k a semester program) may not be realized after four or five years.  Else, we produce underemployment or a terrible mismatch of skills and position.  The Government should prevent an overflow of one program by mandating stiffer regulations on schools.  There are schools who have yet to produce a board passer.  Yet they advertise nationwide, using those artistas.

8.  All surplus must be sold.  Applying now, we must be lean and mean.  All unnecessary things must be sold and converted to liquid assets.

9.  A huge amount of gold, after some time, gets boring.  One should experience war from time to time.  In life, success is sweeter after every battle.

10.  No matter how hard the terrain, one can build a castle and become successful.  No matter how hard the times, one can be successful in business.  One needs a lot of expertise. One needs to study a lot.  The leaders can show the way.  

11.  In any siege.  If the leader is killed, no matter how many soldiers you have, you lose.  One must then take care of keeping the leaders.  The others are just wheat grass.  In the company, workers can come and go.  But the leaders must be kept.  Else, the stronghold falls.

Your stronghold awaits you.

Drugs Wholesale

For drugs wholesale, the following are my indicators:

1. Market cap > 1Billion US$
2. P/E < 18.45 (12.30 x 1.5)
3. ROE > 22.8%
4. Debt: Equity < 0.96 (0.48 x 2)
5. P/B < 18.6 (12.42 x 1.5)

For 1, the following were ok: ABC, CAH, HLF, MCK, and NUS
NUS drops out because of high P/E
For ROE, I was not so strict, allowing the companies to qualify with lower ROEs
Considering 4, only ABC and MCK remained.

Technicals:

Using technicals, ABC (Amerisourcebergen) shows a downtrend. I must wait for a reversal.
For MCK (McKesson Corp), it's prepare to buy. The uptrend is not yet established.

Semiconductors - Specialized

The following were the considerations:

1. Market cap greater than US$1Billion
2. PE < 27
3. Debt: Equity < 0.70
4. PB < 8

Only three companies qualify:

Microchip
NVIDIA
Xilinx

Microchip's debt to equity (1.11) however is a bit too big for the group.
For XLNX , it seems too late to buy as the trend has started already.
NVDA's MACD is not too good yet. So we can watch and see this stock and prepare to purchase if the technicals look good.

PSE stocks May 23 2008

Results of my bets last week:

Out of my 7 bets, I was correct 5 times. I was incorrect with my buy of SM (week on week), and FLI held on to 1.00

Over all, my winnings stand at P2,625.00 (+1.71%)

For this week, my bets are:

BUY AC, EDC, TEL
SELL BDO, BPI, GLO, JFC, PCOR, SMPH
HOLD SMC, SM, FLI, MWC

Internet Software Services

For Internet Software Services, the following are my considerations:

1. Market capitalization should be above US$ 1 Billion
2. PE should be lesser than 105 ( 70.40 x 1.5). This is quite high.
3. ROE should be greater than 3.3%. The average ROE of ISS companies is quite low.
4. Debt to equity should be lesser than 0.58 (0.29 x 2)
5. PB should be lesser than 30 (20.27 x 1.5)

The following companies qualify and were tested along technical lines:

GIB is trending downwards
SYMC PE is 39. Perfect buying point was on April 2008
SINA and OTEX are both trending downwards.
DRIV (Digital River) - prepare to buy on trend reversal coming up.
RNWK (Real Networks) - a little too late to buy. Buy cautiously.
GIGM (Giga Media) - Prepare to buy.

My PSE Companies

I limited portfolio monitoring to just 13 stocks. Ok. I know. 13. What the hell.

May 16 2007 eps Mar 2008 eps
1. AC 345.00 37.80 6.06
2. BDO 48.00 2.86 0.58
3. BPI 53.00 3.78 0.57
4. EDC 5.50 0.577 0.08
5 GLO 1340.00 100.07
6. JFC 45.00 2.364 0.4698
7. PCOR 5.90 0.68
8. SMC 44.00 2.74
9. TEL 2685.00 188.42 54.71
10. SM 265.00 19.67 6.2
11. SMPH 8.30 0.481 0.128
12. FLI 1.00 0.071
13. MWC 18.00 1.06



I considered momentum in earnings, and technicals. The following are my bets on the above. I did not include the companies that I consider to be a HOLD.

Sell BDO, JFC, PCOR, SMC
Buy EDC, SM and FLI (weak buy)

Internet Information providers

Going through the companies classified as Internet Information Providers, I considered the following:

1. Market capitalization should be above US$1 B. Else, I believe the stock is vulnerable to whipsaw of price movements even from small players.
2. P/E should not be 50% above the industry average.
3. ROE should be equal or greater than that of the industry average.
4. Debt to equity, should not be greater than twice the industry average.
5. Price to book value should not be greater than 150% of the industry average.

1. Taking market cap, the following stocks qualified: AKAM, BIDU, CNET, EXPE (Expedia), GOOG (Google), SOHU, WBMD, and YHOO(Yahoo).

2. For Price to Earnings ratio, the Technology sector's average is 18.18, and the IIP's sector is 29.50. Hence, I consider 43 (150% x 29) to be the upper limit of PE for stocks. With this, AKAM, BIDU, GOOG, and SOHU dropped out.

3. For ROE, Technology sector's average is 14.33%, while IIP's is 14.60%. Taking this into consideration, EXPE (6%), WBMD (11.3%), and Yahoo (10.96%) dropped out. CNET alone remains.

4. For debt to equity ratio, Technology has 0.68, while IIP has 0.08. Doubling this (0.16), we find that CNET's ratio (0.13) is within acceptable range.

5. Price to book value scenario is the same. Tech has 5.20, while IIP is 6.38. PB ratio then should be below 150% of 6.38 or 9.57. CNET's P/B is way below at 2.43.

The five way test then produces a winner - CNET!

After the fundamentals, we can check its technical specs. I used only 50 and 200 day averages, and the MACD indicators, to check its long term trend.

CNET passed the technicals test - although at this point it is not clear whether the direction will be for the long term. Heck. Buy CNET at 7.50

Industries that rock

According to Yahoo! Finance, the following industries are tops when it comes to Quarterly Earnings growth (% year-on-year):

1. Farm products - 1317.30%
2. Drugs wholesale - 843.19%
3. Broadcasting-radio - 587.64%
4. Agricultural Chemicals - 427.56%
5. Marketing Services - 350.15%
6. Internet Software and Services - 256.19%
7. Semiconductor Specialized - 249.04%
8. REIT - residential 246.55%
9. Farm/Construction Machinery - 168.96%
10. Music Video Stores - 155.75%

Now, when I looked at Longterm growth rate (5years), this is what I saw:

1. Internet Service Providers - 40%
2. Dairy products - 28%
3. Recreational Goods, Other - 27.50%
4. Pollution and Treatment - 27.25%
5. Auto Parts Wholesale - 24.36%
6. Internet Information providers- 23%
7. Biotechnology - 22.87%
8. Medical Instruments and Supplies - 22%
9. Drug Manufacturing Other - 21.96%
10. Health Care Info Services - 21.50%

The two lists are in contrast to one another. The first looks at the past year, while the second attempts to predict the future.

The first step I could do is to look at the above industries and find out something I believe I can understand and try to pick a stock or two that are leaders in their industries. See what happens.

Shares close higher as PLDT advances ahead of results

MANILA, Philippines -- (UPDATE) Shares closed a choppy session higher Friday as optimism about corporate earnings outweighed domestic political concerns, although the thin volumes reflected caution ahead of another anti-government rally later in the day.

*** Still, corporate results may outweigh political woes.

Blogged with Flock

Banks end-2007 bad loans ratio at 4.45%, lowest in 10 years

MANILA, Philippines -- Banks' non-performing loans ratio dropped to 4.45 percent at the end of 2007, the lowest in about a decade, from 4.99 percent in November, central bank data showed Friday.

***Good news

Blogged with Flock

EU slaps Microsoft with $1.35 billion fine | Tech news blog - CNET News.com

EU slaps Microsoft with $1.35 billion fine

Posted by Mike Ricciuti | 241 comments

This post was updated several times, most recently at 7:40 a.m. PST, with additional reporting provided by CNET News.com's Dawn Kawamoto.

European Union regulators on Wednesday fined Microsoft a record 899 million euros, or $1.35 billion, for failing to comply with sanctions.The fine specifically addresses sanctions over the pricing structure Microsoft had set for licensing of its interoperability protocols and patents.

EU slaps Microsoft with $1.35 billion fine | Tech news blog - CNET News.com

Blogged with Flock

Phisix - Where is it going?

It would seem to be turning sideways. But looking at a 5-year view, it would be different:




Based on long term trending, it is clear that the overall market trend is downwards. Bollinger bands (top image, uppermost window) however seems to signal a firming up. This signals a strength that may indicate an uptrend in the short term, given enough fuel that is.Relative Strength Index (RSI) is still in its downtrend. It is also still far from oversold levels (usually pegged at 20). Hence, if it continues in its downtrend, it will go farther down.MACD is still downtrend.Stochastic clearly paints a dismal figure.Technical analysis signals our exit from the market. It remains to consider things from fundamentals side. My whole porftolio was sold way back during the first signal of downtrend, except for Manila Water Corporation (MWC). I think it will also give way this week.

Blackstone shares jump 19% in debut

Blackstone shares jump 19% in debut

Shares of private equity titan Blackstone Group jumped about 19 percent in their market debut Friday, further enriching the firm's two founders and raising the specter of more scrutiny from lawmakers.