Sleep walk or rally?

Last week, the market ended with a net weekly gain of 111.19 points or 1.65 percent. This happened as the market managed to widen its advance by another 50 points to reach—again, for the first time in 11 months—the fringes of 6,900.

Incidentally, last week, the market showed an interesting net monthly gain of 194.50 points or 2.93 percent. Cognizant but still unimpressed by the market’s advance for the month of June, a number of market participants choose to remain skeptics about the whole market’s prospects.

As they say, if the market will ever continue to advance further, it may just “sleep walk” higher, which in the end will lead to an inevitable downturn.

Claim

Based on the bourse’s latest Weekly Market Watch covering June 16 to 20, 2014, they cite at least seven listed stocks as examples of their claim. These stocks recently came into very active play—Philex Mining Corp. (PX), Global-Estate Resorts Inc. (GERI), Sinophil Corp. (SINO), Double Dragon Properties Corp. (DD), D&L Industries Inc. (DNL), Anchor Land Holdings Inc. (ALHI) and DMC Holdings Inc. (DMC).

At P12.04, PX was trading at 173.84x earnings of P0.07 a share and at the price-to-book value ratio (PBV) of 2.73x. At this price, too, it went up 29.46 percent in the last one week and 30.59 percent in the last four weeks.

At P8.39 per share, DD was trading at 175.41x earnings of P0.05 a piece and at the PBV of 31.71x.  Its share price went up by 15.09 percent in the last one week but down 14.82 from the price four weeks ago.

Then there’s Geri. At P2.09 a piece, it was trading at 71.44x earnings of P0.68 a share but trading only at the PBV of 1.14x.  Also, its stated price went up by 8.85 percent in the last one and four weeks. At P13.98 a share, ALHI was trading at 20.71x earnings of P0.68 and at the PBV of 4.50x.  The share price went up 7.37 percent during the period and 6.88 percent from four weeks ago.

Comes DNL: At the last traded price of P9.80 a share, it was trading at 25.02x earnings of P0.39 a piece and at a PBV of 9.80x.  DNL’s market price went up 4.93 percent in the one-week period and 7.69 percent in the last four weeks. Sino is stunning. It is running a loss of P0.001 per share.  At P1.30 a share, it is trading at negative 1,031x but—unbelievably—trading at the PBV of 4.91x.  At this price, it was up 16.07 percent last week and 266.20 percent from four weeks ago.

Last is DMC.  It was cited not as an example of being overvalued (price too high) unlike the other cited stocks but as a sample to show the bearish outlook of the market. At P74 apiece, it is trading at 10.38x earnings of P7.13 a share and at a PBV of 3.83x. DMC’s share price went down by 4.27 from four weeks ago.

Bottom line spin

The 30-component Philippine Stock Exchange index (PSEi) was at 19.91x in the cited Market Weekly Watch report. While still considered relatively high compared to other competing equity markets, this price-earnings ratio (PER) is much lower than that of the cited stocks. This makes the All Shares Index look cheaper at 18.99x.

The market last week was at 6,730.96, up 14.28 percent from the start of the year at 5,889.83. Last week, the PER of the various sectors are as follows: Financials, 14.13x; Industrials, 21.06x; Holdings Firm, 16.38x; Property, 38.57x; Services, 27.38; and Mining and Oil, 33.13x.

Just looking at these statistics, the impression of skeptics on the market is understandable. Some stocks and subsectors of the market are, indeed, overvalued. And looking back at how far the market has gone up since the start of the year, some profit-taking or some form of selloff is bound to happen. With a 14.28-percent return in the face of a market starting to face new headwinds, this is not a bad idea. Thus, it is reasonable to expect the market to show some bearish tendencies.

But looking at how the various sectors are doing on the basis of just the PER metrics, some opportunities also stand out. There is still plenty of room to expand in the financials and holding firm sectors. Some room also still exists in the industrials sector but the property and services sector seem to be getting pretty stiff.

Also, most of those stocks that are now breaking price barriers are actually trading on good story lines. Good story lines are good, for they provide a glimpse of what the company “promises” to be. But as the saying goes, “one bird in the hand is worth two in the bush.”

In these uncertain times, the best market dictum to follow is stick to the hard facts, not the “promises.”

The writer is a licensed stockbroker of Eagle Equities, Inc. You may reach the Market Rider at [email protected] , [email protected] or at www.kapitaltek.com