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On bottom fishing

/ 09:36 PM October 17, 2011

I said in my article last week that the market may have reached what could be a turning point from its otherwise “trendless, but not exactly trendless” condition and, in this connection, I contended that it was time to “bottom fish” rather than “head for the hills”—using a common euphemism to denote my decision “to buy” rather than “to sell.”

And the market did: To every market rider’s delight, it went on a five-day run-up that resulted in a fascinating 3.59 percent, or 144.14 points, weekly advance. The run-up may be comparatively modest but it was certainly a welcome development and a stimulating surprise as the market had been that sparing in stock plays for the longest time, so to speak.

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Market performances

Stocks from all major sectors of the market advanced in varying degrees last week. Among those that outperformed was Leisure and Resorts World Corp. (LR), a market favorite especially for “swing traders.”

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Swing traders are market participants who are not necessarily interested in the fundamental or intrinsic value of a stock but on its price action or market performance. They are also named as such for their practice of holding on to their stock positions for one to four days only.

Within the last 30 days, the price of LR had ranged from a low of P5.90 to a high of P8.05, a share price range equivalent to 36.44 percent. In the last 52 weeks, the price of LR has also risen by as much as 615.15 percent, given its 52-week high share price of P12.18 and 52-week low of P1.98 a share.

In last week’s run-up, LR performed on Monday as follows: It opened at P6.63; hit the low of P6.54; reached the high of P6.97; and closed at P6.82. On Tuesday, it opened at P7.12; had a low of P6.69; a high of P7.15; and a close of P6.69 apiece. Last Friday, it opened at P7.11; dropped to P7.10; climbed to P7.66; and closed at P7.55.

Assuming that you acted only last Tuesday, purportedly prompted by my article when it came out on Tuesday, and assuming that you bought at the close of P6.69, and assuming as well that you may have sold out at the closing price of P7.55 last Friday, it would have yielded you a capital gain of about 12.89 percent.

In actual investment terms, for a capital of P100,000, this would have yielded a profit of about P12,890 (in one week). Annualized (52 weeks times P12,890), this would theoretically amount to P670,280 in investment gain.

LR is active in the operation of bingo parlors and gaming enterprises and facilities through its wholly owned subsidiary AB Leisure Exponent Inc. (ABLE).

LR’s disclosed participation in the operation of the $1-billion integrated resort and gaming facility of listed Belle Corp. (BEL) that is aimed to get a slice of the $35-billion gaming industry, had all the more made LR to be one of the most highly traded penny stocks today.

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LR, however, may continue to trade erratically in the coming months. The opening of the resort and gaming facility was again postponed. From its already postponed opening schedule of the second quarter in 2012, it was again moved to the first quarter of 2013. This latest news will confine the price of LR to move within a limited price channel until then.

Semirara Mining Corp. (SCC) was another market favorite that did well last week. On Monday it had the following performance: open at P184; low of P184; high of P185; and close of P185. On Tuesday, the share price of SCC opened higher with a P4.90 price gap at P189.90; then proceeded to hit the low of P188.50; climbed the high of P194.90; and closed at P194.

As already reported, SCC has weaned itself from its precarious business model of depending on a single customer. In the process, it has made the energy sector as its next source of major growth. This will come from the planned construction of a 600-megawatt power plant in Batangas in addition to the rehabilitation of the Calaca coal-fired power plant, which is projected to increase operating capacity by 30 percent this year and more than 90 percent next year.

Together with its maximized excavating capacity for coal business, estimated consolidated net earnings for 2011 will be P5.34 billion, or P16.58 earnings per share (EPS). This will increase to about P7.1 billion in 2012 for an EPS of P19.89. The estimated net earnings of SCC for 2011 amounts to about 11.70 times P/E only at the closing market price of P194 a share last Tuesday.

Again, assuming that you only bought last Tuesday at the closing price of P194 because of my article that day (disregarding the very obvious fact that if you have noticed, SCC was on its way up after it hit the support price of P184 the day before), at the closing price of P210 last Friday, you would have made a gain on your capital of about 8.25 percent or for a theoretical annual return (52 weeks) of 429 percent.

In actual monetary terms, an investment of P100,000 would have yielded you a profit of about P8,250 or for the annualized theoretical return of P429,000.

SCC, like LR, may also continue to trade in a limited price channel until the impact of increased power supply is further reviewed against demand.

Bottom-line spin

I would say that the market last week afforded a price run-up that ranged from 5 to 14 percent on an individual stock basis. Considering the nature of the market’s movement in the last four weeks or so, swing trading was a natural trading strategy apt for use last week.

My recommendation to reenter the market last week, however, did not only include looking at stocks whose market prices have literally “bottomed” but whose business prospects have remained fundamentally sound and robust. It was a search for stocks that can be both traded for the short-term and long-term play. In particular, it was a search for value stocks.

Based on earnings prospects expected out of the improving picture of the local economy, we may find value stocks in the power, mining, property, banking and financial sectors. (We will go over some of them in succeeding articles.)

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.

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TAGS: Leisure and Resorts World Corp., Semirara Mining Corp., stock trading
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