Go for large-cap stocks, experts say
MANILA, Philippines—The fall of the stock market from record-highs to its current level gives investors the opportunity to sift through the rubble and take positions. The Inquirer’s Doris C. Dumlao asked four stock market veterans to name their three most compelling stock picks given the current market environment. Not surprisingly, this quarter’s poll revealed choices dominated by large-cap stocks which are part of the main-share Philippine Stock Exchange index.
Summit Securities Inc.
Manila Electric Co. (MER)
“Basically, power would be a basic need in the country’s economic upturn and right now, it is one of the industries we need to catch up on. I think Meralco will be at the forefront in the economic upturn. It’s doing something like 16.5x P/E* (price-to-earnings) ratio for 2013, so it’s within the price range that I would consider attractive. I expect this to trade above P300 per share or the level before the recent decline. The recent drop is an opportunity to take position in Meralco, the biggest in power distribution which is also going into power generation.”
“I look at it as the mother company of all Andrew Tan property-related companies. At this time, it’s doing at about 14x P/E* ratio … Since it’s doing a mixed property development, I feel that eventually, Megaworld would go back (to higher valuations). It’s one of those at the forefront (of property development), so Megaworld is worth considering for investment. It has ELI (Empire East Land Holdings—a mid-market residential developer) and GERI (Global Estates Resorts Inc.) which is tourism-oriented. Megaworld is already there, not aggressive, very successful and has other businesses around it.”
“This property company has just started. It’s held by the Lopez group and led by a good president, (Nestor) Tong Padilla. This is a property company that will join the big boys. It is backed by the Lopez group and led by a very capable person who has shown his ability to grow Rockwell Land. They have shown the way to community building. It has listed by way of introduction—not yet doing an initial public offering— and, looking at its price versus book value, it’s not too far. It can also go into tourism-oriented property development. This is for long-term growth potential.”
Metropolitan Bank and Trust Co. (MBT)
“I think it’s one of the cheaper banks. Its price has gone down only because it announced a 30-percent dividend. In general, foreign investors don’t like big dividends because there’s a big reduction (on their net take) because of withholding tax. It’s because of that dividend tax adjustment that the bank’s price has fallen. But Metrobank’s earnings potential is good. It has large nonrecurring earnings (from the sale of stakes in affiliate automotive and power generation businesses) and huge recurring earnings. It is trading at about 2x book value, in line with peers, but it has greater growth potential.”
Melco Crown (Philippines) Resorts Corp. (MCP)
“On a speculative basis, MCP has a fighting chance. Just like Bloomberry before, the hype was during the run-up to the opening. Whenever a new casino nears its opening date, that’s where the play is, so it’s good to buy ahead of its opening.”
Oriental Petroleum and Minerals Corp. (OPM)
“People look at it as speculative but it appears to me that Oriental is now undergoing a change in character. They don’t do a lot of exploration drilling anymore. Any drilling they do is well-calculated to produce. It is now drilling Galoc Phase 2 which will increase production of Galoc field to 15,000 barrels a day or double the current production. It is cheap, trading at 2 centavos, and it gets a premium price for its oil, as its crude is sweeter than the benchmark Dubai crude. OPM changed its primary purpose to include electricity and this shows a shift to less speculative pursuits.”
Chief Investment Officer
Banco de Oro Unibank
Petron Corp. (PCOR)
“Petron is undergoing a major structural change in its refining operation called RMP2 (Refinery Expansion Project-2) that will allow the company to produce high-value premium while product. The plant is scheduled to increase production capacity from 94,000 barrel to 180,000 barrels per day beginning the fourth quarter of 2014. The effect may be likened to Bankchak Petroleum of Thailand which modernized its refining plant. Banckak Petroleum stock price tripled once the upgraded plant started operations.”
Ayala Land Inc. (ALI)
“The company’s massive expansion in real estate projects coupled with the low interest rate environment would generate strong growth for ALI and increase its value. Performance continue to surprise on the upside, giving room for analysts to upgrade their numbers for the company moving forward.”
Alliance Global Group Inc. (AGI)
“With the company’s exposure in diverse and fast growing sectors, AGI is projected to generate above average returns. AGI’s major investments in gaming (Resorts World), property (Megaworld Corp.), beverage and spirits (Emperador Distillers), Tourism (Global Estates Resorts Inc.) and food (McDonald’s fast-food chain) are expected to contribute to a strong performance in the coming years.”
Head of Research
Ayala Corp (AC)
“It’s a key Philippine proxy with dominant positions in property, banking and utilities. It’s building 900 megawatts in gross generating capacity for its power initiatives and is at the forefront in PPP (public-private partnership) bidding due to balance sheet size and track record. Real time net asset value (NAV) of P727 implies a 22-percent discount on two-year compounded annual growth rate (CAGR) of 18 percent until 2014—higher than market earnings growth.”
Metropolitan Bank and Trust Co. (MBT)
“We prefer MBT because of the certainty of its earnings growth and that it has boosted capital in preparations for the Basel3 implementation next year. MBT has sold down its ownership to several non-core assets (Toyota and Global Business Power) which should translate to hefty one-time gains boosting its bottom line this year by at least P4 billion, which should push earnings to P20 billion this year. Increased earnings will be supported by improving margins (3.8 percent net interest margin) and a loan growth of at least 12 percent.”
Philippine Long Distance Telephone Co. (TEL)
“We see potential for better-than-expected margin recovery amidst successes made in post-paid subscriber acquisition. It has a resilient 4-5 percent earnings growth this year with potential upside from peso depreciation as 30 percent of revenue is dollar denominated. Dividend yield of 5.8 percent provides support and it typically exhibits above-market performance in the run-up to the bi-annual dividend this August.”
*P/E refers to how much investors are willing to pay for a stock relative to prospective earnings per share.
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