We’re hitting new market highs but why are stock prices not high enough?
This is a question from a friend, who is disappointed that recent price highs have not affected the performance of his investment positions—a feeling that is shared by many investors amid the latest market run-up.
My friend complained, “I faithfully followed the market advice to pick up stocks with steady income and solid track record. And when choosing growth stocks, I pick only those that are said to allow me to sleep soundly at night.”
His best choice was PLDT. He invested a big amount of money in this “blue chip” stock. Like the pros, he chose a company that has a large capitalization, established long record of operation, strong management team and consistent earnings.
But to his dismay, compared to the market’s average year-to-date return of 22.45 percent, his investment in PLDT was only making 3.36 percent as of last Friday. He bought his PLDT at P1,606.00 per share on March 30, 2017.
PLDT’s share price was on a decline, hitting a low in December 2016. It attempted to rebound in January and traded sideways in the next three months. It was at this time that he bought his shares. By June, PLDT hit the 52-week high of P1,944.00 per share. This emboldened him to hold on to his PLDT holdings, which traded last Friday at the price-earnings multiple (PE ratio) of 17.98x.
For his growth stock, he invested in Universal Robina Corp. (URC). He bought URC at P162.90 per share last March 27.
URC’s positioning to become a regional consumer food player, in addition to its potential in the local market, was convincing enough as an attractive investment.
But because of “continued challenges” brought about by “higher net finance cost” particularly for acquisitions, investments in advertising, promotions and distribution, URC’s stock price continued to slide. Thus, my friend’s stock position last Friday showed a paper loss of 12.83 percent and trading at the PE ratio of 20.46x.
The property counter, however, was his saving grace. He has three stocks in this sector: Megaworld Corp. (MEG), SM Prime Holdings Inc. (SMPH) and Ayala Land Inc. (ALI).
MEG closed at P5.64 per share last Friday. Since he bought MEG shares at P3.48 on March 28, his stock position now enjoys an investment return of 62.01 percent.
Notwithstanding MEG’s high investment return performance, which meant its price has gone so much since March, it is trading only at a PE of 15.84x.
As of last Friday, SMPH closed at P37.40 per share. This was 6.17 percent above the share price of P34.85 on March 24, the day he bought his SMPH shares.
Since he continued to hold on to his SMPH shares, however, he is now enjoying an investment return of 33.57 percent.
ALI, my friend’s third stockholding in the property sector, was not to be outdone. Although my friend complained that the current market run-up did not propel share prices to desired levels., ALI closed last Friday at P44.00 apiece.
His complaint can be partially justified because ALI’s price in the last 30 days was somewhere around P45.50 per share. This means ALI shares are trading at negative 3.30 percent.
Since he bought ALI on March 31 at P33.50 per share, his investment return as of last Friday stood at 31.34 percent.
Bottom line spin
Let’s try to figure out the returns of his nine other stockholdings, which could be made part of a list for more stock picks. He bought them all in the last week of March.
These are Ayala Corp. (AC), Alliance Global Group Inc. (AGI), SM Investments Corp. (SM) and San Miguel Corp. (SMC), Metropolitan Bank and Trust Company (MBT), BDO Unibank Inc.,Bank of the Philippine Islands (BPI), Manila Electric Co. (MER) and mining firm Nickel Asia Corp.
Notice that even if these are “stocks with steady income and solid track record, and are deemed growth stocks that allow you to sleep soundly at night,” they did extremely well contrary to “the general impression that these kinds of stocks would almost always have a mediocre performance.”