Strategy when the market has been up

THE Holy Week break this year marked the market’s 14th week of trading and the end of the first quarter.

The market again proved to be a big winner: It closed for the week at 7,993.09 on Wednesday, April 1, at a new record high, collecting 115.13 points or 1.46 percent in weekly gains.

Total gains for the month hit 209.92 points or 2.72 percent and 762.50 points or 10.55 percent for the quarter.

At the market’s close of 7,940.49 on March 31, the total gains for the first quarter were equivalent to 710.36 points or 9.82 percent.

Comparative performance

Exactly four years ago in 2012, when the market closed for the quarter at 5,107.73 on March 30, it posted a quarterly net advance of 735.77 points or 16.83 percent. This proved to be a big turnaround, for just a year back in the same period, the market was down 147.17 points or 3.43 percent.

As the market continued on into the year, it soared all the way up. It closed at 5,812.73 at the end of the year, bringing the market’s total annual gains to 1,440.77 or 32.95 percent.

The market’s advance quickened in 2013. When it closed on March 27 for the first quarter of the year at 6,847.47, it was already way up with a net gain of 1,034.24 points or 17.80 percent.

However, the market went deeper into the year, proving that 2013 was a difficult year. It settled at 5,889.83 at the end of 2013, with a net gain of only 77.1 points or 1.33 percent.

In 2014, the market’s advance for the first quarter was deemed modest. At 6,348.50 at the end of the quarter, the market was up by 458.67 points or 7.79 percent.

Notwithstanding this much smaller gain, the market’s total performance for 2014 was still better in comparison to that of 2013. The market’s performance also proved to be much better when it closed for the year with a net gain of 1,340.59 points or 22.76 percent at 7,230.59.

Some prices

Prices of individual stocks have gone up. Two stocks aptly captured the whole market’s rise and pace.

At the end of the first quarter of 2014, the market price of Universal Robina Corp. (URC) was only P149 a piece. By last Wednesday, April 1, URC’s stock price has risen by 51.68 percent to P226.00. Such an increase also brought about a rise in the price of URC stocks to 15.31 in the first quarter or since the beginning of the year.

Based on its April 1 postings in the PSE website, URC has a 52-week high of P226.60 and a 52-week low of P143.60, and a price-earnings multiple or PE ratio of 49.13 times.

The continued rise in the price of URC shares appears to have stemmed from the investing publicÆs appreciation of the company’s progress in strengthening its operations to expand its business and markets in the region.

Not even URC’s big free float level of 43.52 percent is affecting its price run. This factor alone can work to slow down the continued advance of the stock price but it has not. The price of URC shares remains robust.

This brings me to another stock that continues to both amaze and awe everyone, too. This is Xurpas, Inc. (X). With an initial public offer price of P3.97 per share, Xurpas shares traded last Wednesday, April 1, at P9.99 per share.

At its latest traded price and reported earnings per share of P0.11, Xurpas shares are being priced by the market at 90.82 times. Its traded price on March 26 of P10.74 is equivalent to 97.64 times.

Xurpas is apparently being priced by its growth and expansion programs as a regional player, which it is pursuing by acquisition of and/or investment in related businesses. An example is its recent acquisition of a 49-percent interest in Indonesian firm PT. Sembian Digital Investema (SDI), owner of the mobile content company Ninelives Interactive. With the investment, Xurpas is entitled full management control.

This is the third company that Xurpas has acquired or invested in since its initial public offering in December last year. The first was a 21.78-percent stake in Altitude Games PTE Ltd of Singapore and the other is the 51-percent interest in Storm Flex Systems Inc.

Notwithstanding these acquisitions to spur growth and augment corporate profitability by Xurpas, I cannot help but remember the specter left behind by the unimaginable losses sustained by the market during the first dot.com fall.

Bottom line spin

There is no doubt the market has gone up so high. At last week’s close, it has posted a total gain of 2,103.26 points or 35.71 percent from last year.

This, in turn, has driven up stock prices to higher extremes. As illustrated by the price of URC shares, stock prices have soared to highs not seen before.

XurpasÆ price run-up is even more incredible. It has driven the investing public to price it to more than 100 times reported earnings. This is all because of the market’s current enamor to growth than profits.

For URC, the advance of its share price hasn’t shown signs of weakening. For Xurpas shares, however, recent signs of future price advances have been met with contractions.

The market seems to mirror both tendencies displayed by the said two stocks. This makes getting ahead of the market all the more confusing.

Confronted with this kind of market setting, it is but fair to play safe. In market practice, this means you have to trade your position.

To some accounts by seasoned investors, this means the following strategy: Start to take 50 percent of profit when your stock investment has risen by between 30 to 40 percent. Take the next 25 percent when the stock goes above 60 percent. Then, take the remaining 25 percent when the price of the stock stalls or starts correcting.

A more conservative variant of this strategy is to actively trade about 50 percent of total investments–following the same trading regimen–and leave the balance untouched and invested for the long-term.

The extreme of this strategy is to completely sell out and buy back your investment positions. It is drastic and radical. But it can prove very profitable especially in markets that trade to a full circle.

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