Stock pick updates
As if to disprove expressed critical conclusions on the political and economic footing of the United States, the value of the dollar went up and the yield of US treasuries sank lower following the unprecedented downgrading of US sovereign debts from AAA to AA+ by Standard and Poor’s (S&P).
In connection with the credit-rating downgrade, the Dow Jones industrial average took a wild rollercoaster run. It fell sharply lower by 635 points on Monday, rebounded by 420 points on Tuesday, lost 520 points again on Wednesday, regained 423 points on Thursday and—as if in display of strength that it may have finally recovered—pushed on higher by another 125 points on Friday.
Local scene
The local market initially sympathized. On Tuesday morning, following Wall Street’s Monday meltdown, the Philippine Stock Exchange index suffered its biggest single-day loss for the year. It fell 174.21 points that, more or less, brought back the market to the low of 4,123.70 established on June 14. However, the market followed a different path after that initial reaction. It resumed its old hum and started to ride back on intrinsic domestic economic strengths to close higher day after day until last Friday.
Nevertheless, because of the observance of the current Chinese ghost month, this may not happen very soon. The market might stay relatively lower throughout the Chinese ghost month, which will end on August 28. Before then, the market will not try to challenge the market’s all-time high of 4,563.65 record established on August 2. Also by then, this will be just about the time when Wall Street may have more indicative news on the progress of the US economy and financially strapped Europe.
Bottom-line spin
Despite what is happening, the global economy is not on a free fall, according to one expert opinion. It is believed that while the global economy is hurting, it is not totally ineffective with its present measures to resolve issues. Thus, the present circumstances of the global economy could be described as difficult but not desperate, much less impossible.
In view of this, it is felt that taking stock of market positions in the next two weeks is already in order. This will coincide with the ending of the Chinese ghost month, wherein stock prices are expected to generally rise all the way up to September.
As suggested, stay with stocks with fundamentals. For starters, let’s take a look at Ayala Land Inc. (ALI), Banco de Oro Unibank Inc. (BDO) and Manila Water Co. (MWC).
For the period ending June 2011, the bottom line of ALI was “up by 35.5 percent to P3.87 billion.” This was due to a rise in total revenue equivalent to some 15.2 percent, amounting to P21.25 billion. The obvious increase in profitability was accounted for by ALI’s lower ratio of operating expenses to revenues, in addition to increased gross margins for the period. Accordingly, the growth in both revenue and income in ALI’s operation was made possible “with the marked improvement from its commercial and industrial lots, office and residential development businesses.”
As of last Friday, ALI closed at P15.90 a share. This is equivalent to about 41 percent of its estimated net asset value (NAV) a share after the first half of this year. Applying a 20-percent discount, the price of ALI should now be about P21.50. ALI has a big free float equivalent to 46.0 percent and very liquid, thus, an ideal stock pick.
Based on BDO’s first-half financial report, net profit rose 20 percent to P5 billion. This was accounted by an increase in trading gains by 38 percent, increase in fee-based income by 14 percent and the increase in volume on asset and wealth management services, payments and electronic banking fees, insurance and capital markets businesses.
As of Friday, BDO has a healthy free float rate of 41 percent as it closed at P30 a share. Projected earnings per share (EPS) for the year of BDO may reach P3.93, its book value (BV) is placed at P36 a share. At a 12-month price objective of P70.50, BDO shares will be trading at the price earnings ratio (PER) of 16.39.
In MWC’s report for the first half, total revenues grew 6 percent to P5.80 billion mainly due to the increase in water tariff starting February this year and the increase in environmental charge from 16 to 18 percent. As a result, core income increased to P2.14 billion from P1.97 billion last year. Earnings before tax, depreciation and amortization, or Ebitda, margin remained strong at 74 percent. This is expected to continually improve as MWC will be allowed to collect a yearly P1/cubic meter [ex-inflation factor] increase in water rates.
MWC made another unsolicited proposal for the development, operation and maintenance of a bulk water supply system in the province of Cebu (Carmen bulk water supply project). This is anticipated to be MWC’s next growth driver. The bid is still subject to a Swiss challenge from other interested parties. In this regard, MWC has the comparative advantage as the first bidder has the right to match whatever proposal the challengers will offer. It develops the Luyang-Cantumog River, which will be the supply source for the Carmen water project.
The writer is a licensed stockbroker of Eagle Equities, Inc. You may reach the Market Rider at [email protected] or directly at www.kapitaltek.com.
