UBS Investment Research sees ample global liquidity keeping Philippine stocks buoyant despite valuations that have become ?less compelling? following the year-to-date rally but also warns of possible constraints to corporate earnings growth.

Arguing that liquidity may be difficult to predict, UBS said it preferred stocks with more sustainable growth drivers. Its top five stock picks for 2010 are geothermal power crown jewel Energy Development Corp., infrastructure holding firm First Philippine Holdings Corp., property developer Robinsons Land Corp. as well as leading banks Banco de Oro Unibank and Metropolitan Bank and Trust Co.

UBS said EDC and First Holdings could benefit from deleveraging or a reduction in liabilities as a result of the recent sale of the Lopezes? substantial stake in power retailer Manila Electric Co.

RLC was seen gaining from the passage of a real estate investment trust (REIT) law while BDO and Metrobank were seen to benefit from easing default risks.

UBS sees three possible catalysts for EDC: Lower taxes from the implementation of the Renewable Energy Law that could lift earnings by 30 percent; additional earnings from geothermal plant acquisitions that could add 15 percent to earnings, and the improving credit profile of its parent First Gen Corp. following the sale of the group?s stake in Meralco. (See related story on page B1).

UBS likes RLC on expectations that the passage of the REIT law could unlock value at the company, as 84 percent of its assets by value were believed to be ?REIT-qualified.?

REIT, which will be required to be listed on the PSE, will give investors the option to invest directly in the finished product and not just in the property developer. From the perspective of an investor, this is very attractive because the forthcoming REIT law requires the distribution of 90 percent of income annually, which means that investors can look forward to earning much more from dividends declared on top of potential stock price appreciation.

In the case of BDO, UBS said the bank?s retail-oriented growth strategy had been successful in expanding its low-cost deposit base which now accounted for nearly half of total.