PSEi seen bouncing back to 7,500 level

The stock barometer will likely hit 7,500 this year on the back of the country’s sound fundamentals that will support an average earnings growth of at least 8 percent, investment house First Metro Investment Corp. said.

Cristina Ulang, FMIC head of research, said the projected rise in the Philippine Stock Exchange index this year would be backed by the country’s strong growth momentum.  FMIC sees the economy growing by at least 7 percent this year.

FMIC expects investors to tolerate a price-to-earnings (P/E) multiple of at least 17x times this year, which means they will be willing to pay 17 times the amount they expect to earn from the shares they are holding.

After pulling back from last year’s high of 8,100 level, the local market is valued at about 16.6x at slightly above 7,000 and the regional valuation of around 14x. The five-year historical P/E ratio was 18x.

“We continue to believe that the strong fundamentals will propel the PSEi back to 7,500 with an earnings growth of 8 percent and P/E multiple of 17x,” she said.

The good news, she said, was that the Philippines was the only country in the region that was getting growth forecast upgrades.

FMIC’s 8-percent corporate earnings growth forecast, she said, would be on the back of a gross domestic product growth of at least 7 percent.  But if the Duterte administration delivers on its infrastructure rollout commitment, she said growth could surprise on the upside. If foreign ownership of key sectors would be liberalized, this would also attract more foreign investments.

In this kind of environment, Ulang said investors should choose companies enjoying double-digit earnings growth, good dividend yield, low valuation and strong balance sheet.  FMIC’s preferred sectors are conglomerates, consumer, banks, property and power.

Among conglomerates, FMIC’s top stock picks are Metro Pacific Investments, Aboitiz Equity Ventures, SM Investments Corp. and GT Capital Holdings.  Among consumer stocks, FMIC favors Puregold Price Club, Robinsons Retail Holdings Inc., D&L Industries and Century Pacific Food Inc.

Among banks, FMIC favors Metrobank and Security Bank while among property counters, its top picks are Robinsons Land and Ayala Land.  Within the power industry, its top pick is Aboitiz Power.