Stock picks: Ride the macro cycle

With the Bangko Sentral ng Pilipinas finally cutting interest rates, traders are pushed to invest in companies that stand to benefit from lower rates, particularly banks and property firms.

Analysts surveyed by the Inquirer Business Section prefer these companies, although some also favor defensive stocks whose essential services are not typically affected by the business cycle.

Others see strength in the consumer mass market side, picking stocks that benefit from improved consumer spending.

For some, renewable energy and gold mining plays are still in.

Here are their top three stock picks:

April Lynn Tan

COL Financial Group chief equity strategist

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AREIT Inc.

“Interest rates are expected to go down, especially with heightened risk of a weaker economy. REITS (real estate investment trusts) will benefit from falling interest rates as investors look for yields. We also have a favorable view on Ayala Land Inc.’s recent asset injection as it grew AREIT’s portfolio and made it more diversified.”

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Manila Electric Co.

“Meralco has more defensive earnings since it belongs to the power sector. Its high dividend yield also makes it attractive given expectations of falling interest rates.”

Jollibee Foods Corp.

“JFC was one of the notable outperformers during the second quarter. Profits for the period jumped 30.8 percent to P3 billion, bringing first half profits higher by 28.9 percent to P5.7 billion, which was much better than expected. Growth was driven by strong systemwide sales growth of 12.1 percent. What was even more impressive, though, was that the increase in systemwide sales was largely fueled by strong same store sales growth (SSSG) of 7.4 percent and not just store expansion. Moreover, while there were some international brands that encountered weakness as expected (Smashburger, Highlands Coffee and those in China), these were offset by the strength of its other brands, allowing overall SSSG of the international business to grow by 4.7 percent. Earnings before income tax (EBIT) margin likewise improved by 100 basis points (bp), helping profits grow even faster. Because of the strong second quarter performance, management raised its EBIT growth guidance to 18 to 20 percent for this year from 10 to 15 percent previously. The new guidance is also higher than COL’s and consensus’ growth forecasts of 10.2 percent and 13.9 percent, respectively. Aside from delivering better-than-expected second quarter earnings, we also have a favorable view on JFC’s acquisition of a 75-percent stake in leading South Korean value coffee chain Compose Coffee for P19.9 billion. Compose Coffee currently operates 2,470 stores, which are 100-percent franchised, reducing capital expenditure requirements. Moreover, Compose Coffee will immediately be earnings-accretive as it reported revenues of P5.8 billion and core net income of P1.6 billion in full-year 2023. Upon consolidation, Compose will provide an incremental growth of 2 percent to JFC’s revenues and 12 percent to EBIT.”

Ron Acoba

Trading Edge Consultancy chief investment strategist

Apex Mining Co. “I like APX because it will benefit from a likely rise in the global price of gold should the US start to cut its rates. APX is also cheap, trading at forward price to earnings (P/E) ratio of only 6.3x.”

ACEN Corp.

“I like ACEN because it has already pivoted from a notable bullish reversal.”

DigiPlus Interactive Corp.

“I like PLUS because it is on a clear up leg. It has already cleared its long-time resistance at P12, which has allowed it to exceed P20. PLUS is also ‘cheap,’ trading at a forward P/E of only 10x.”

Jayniel Carl Manuel

Seedbox Securities Inc. equities trader

Bank of the Philippine Islands

“The banking sector is well-positioned to benefit from the current high-interest-rate environment. Banks like BPI are experiencing wider net interest margins, which is the difference between the interest earned on loans and the interest paid on deposits. This environment is particularly advantageous for banks with a significant portion of variable-rate loans, as it boosts profitability. BPI, being one of the major players in the sector, stands to gain from these favorable conditions.”

Globe Telecom Inc.

“The telecom sector is another area of interest, primarily due to the government’s significant investment in telecom infrastructure. The Department of Information and Communications Technology has been proactive in supporting the growth of this sector, recognizing the critical role of internet connectivity in today’s economy. Globe Telecom, as a leading provider, is well-positioned to capitalize on these infrastructure improvements and the increasing demand for reliable internet services, which are essential for both businesses and consumers.”

AREIT

“I’m considering investments in the property sector, specifically in REITs like AREIT. REITs have gained popularity due to the sideways movement of the PSEi, which has led investors to seek out assets that offer stable returns. AREIT, with its high dividend yield, provides an attractive option for investors looking to maximize their earnings potential in a flat market. The historical performance of the PSEi over the past decade, which has shown limited upward movement, investors are increasingly turning to REITs for stable returns, making AREIT a solid choice.”

Kervin Sisayan

Maybank Securities Inc. head of research

SM Investments Corp.“On the retail side and the mall side, it’s very consumer-centric domestically, people will spend a bit more on malls. BDO is already there, and if the economy picks up, loan growth will follow. If I had to choose one in the SM Group, it’s SMIC because it’s diversified.”

Jollibee Foods Corp.

“People will still eat outside, and spending on QSR (quick service restaurants) could improve on declining rice prices. In addition, there could be further room to expand gross profit margins on declining input costs amid a declining inflation environment.”

Ayala Land Inc.

“ALI is doing really well on the high-end side. A decline in interest rates could provide a breather for affordable segments such as Avida of Ayala Land. In addition, the recent weakness in the Philippine peso could make local property prices more appealing to overseas Filipino workers.”

Estella Dhel Villamiel

First Metro Securities head of institutional research department

“Despite the soft consumer environment and challenging macroeconomic conditions, we believe grocery retailers will deliver earnings growth in the second half of 2024. This outlook is based on the return of vendor support, which has led to higher-than-expected gross margins for listed retailers in the second quarter of 2024.”

“In the past quarter, food and beverage manufacturers experienced significant gross margin expansion due to lower year-on-year costs of key raw materials. Faced with slowing demand, these manufacturers reinvested their gains into demand-boosting initiatives, including vendor support efforts. These efforts involve close coordination with retailers for key promotions and market campaigns.

We anticipate that continued investment in these initiatives by manufacturers will support retailer margins in the second half of 2024. Key beneficiaries of this trend include Robinsons Retail Holdings, Puregold Price Club, and SM Investments Corp (for SM Retail). We have issued buy recommendations for these retailers.”

Robinsons Retail Holdings Inc.

“Target price (TP) at P43: Due to higher supplier support and an improved product mix, management has upgraded their expected gross margin expansion to 20 to 40 bps (from 10-20 bps previously). We expect this to allow RRHI to deliver mid-to-high single-digit operating income growth this year. Additionally, sustained dividend payouts and share buybacks are supportive of shareholder returns.”

Puregold Price Club Inc.

“TP at P27.00: We expect earnings to stage a turnaround this year due to favorable base effects, the impact of aggressive store rollouts last year and the return of vendor support. More importantly, inflation coming off towards the lower end of the BSP’s target range should provide relief to Puregold’s target market, i.e., low-to-mid-income households.”

SM Investments Corp.

“TP at P1,030: Our bullish outlook on SMIC is anchored on its large economic moat across cyclical sectors, as it owns the largest bank, real estate developer and retailer in the Philippines. A cyclical upturn in the macroeconomic environment will lift the performance of its core businesses, especially its retailing arm, SM Retail.”

Astro del Castillo

First Grade Finance Inc. managing director

SM Prime Holdings

“As the Philippines’ leading mall developer, SM Prime benefits from a growing middle class and increasing consumer spending. Its diversified portfolio, including residential and commercial properties, provides stability.”

Globe Telecom

“The Philippines’ digital economy is booming and Globe Telecom is a major player in the telecommunications industry. Its focus on data services and digital transformation positions it for continued growth.”

BDO Unibank Inc.

“BDO Unibank is the Philippines’ largest private bank with a strong financial position and diverse revenue streams. Its robust performance and growth potential make it an attractive investment, particularly given the country’s anticipated economic expansion.”

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