Stock picks show flight to quality

PSE headquarters in Taguig City (CONTRIBUTED PHOTO)

MANILA — The stock market slump means investors need to be choosier when making investment decisions.

Our latest survey shows that market experts still mostly favor companies that are part of the Philippine Stock Exchange index (PSEi) or those with the potential to be included in the roster of blue chips. Selected second-liner stocks have likewise caught their attention.

April Lynn Tan, chief equity strategist of COL Financial Group, for instance, advised investors to go for diversified names with stable dividends but also value plays with single-digit price to earnings ratio (P/E).

Eagle Equities President Joseph Roxas recommended undervalued stocks while betting on which company could join the PSEi during the next index rebalancing.

Analysts from Regina Capital Development, Philstocks, and ATR Asset Management also shared their favorites, which are mostly large-cap stocks.

April Lynn Tan, chief equity strategist of COL Financial Group, and Joseph Roxas, president of Eagle Equities.

Here are their top stock picks:

April Lynn Tan, COL Financial Group, chief equity strategist

Aboitiz Power Corp

We like AP because it is a defensive play, which makes it a good choice in light of the risks facing the economy. The company also stands to benefit from the tight power supply situation in the country as this will enable it to sell its uncontracted capacity at a higher price. Valuations are attractive, with the stock trading only 9.9X P/E versus its 10-year historical average of 13.7X, while providing investors with a dividend yield of 5.1 percent for 2023.

AREIT

We like AREIT because it will benefit from a decline in interest rates resulting from the peaking of inflation. The plan of its sponsor, Ayala Land, to inject P22.5 billion worth of rental properties, which include malls, will add 50 basis points to AREIT’s dividend yield and make its portfolio more diversified. It will also make AREIT the biggest listed REIT in the PSE (P80-billion market capitalization), which could allow it to eventually become a member of the PSEi. The stock also provides an attractive dividend yield of 6.1 percent in 2023 and 6.3 percent in 2024 without factoring in the impact of the new asset injection.

GT Capital Holdings

We like GTCAP for its large exposure to the banking sector (through Metrobank) and the consumer sector (through Toyota Motors), which are currently performing well. Toyota Motors also stands to benefit from lower commodity prices, the stable peso and the expected drop in interest rates brought about by the peaking of inflation. Moreover, GTCAP has a strategic partnership with Nomura Real Estate, which has an attractive long-term growth prospect. Valuations are very attractive, with the stock trading at only 6X P/E and at a 50-percent discount to book value.

Joseph Roxas, Eagle Equities president

Manila Water

They were given a price increase this year. I think the reason why stocks are down now is because of that Bayan Muna motion for reconsideration of the Supreme Court that is asking the Supreme Court to compel Manila Water to make a refund. This is just a motion for reconsideration but there was an earlier decision that it can’t be refunded. Its share price came from P21 then fell on news about the motion. I think it’s a good bet to buy now because there was already a decision before not to grant the refund. Buy at a price of P18 and below.

Bloomberry Resorts Corp.

It is a play on recovery and soon, they will open in Quezon City their second gaming facility. Its income trajectory is good. There’s also a good chance that it will be included in the PSEi as soon as September. When Metro Pacific Investments Corp. is delisted, there will be a vacancy and I think the next in line will be Bloomberry, which is now the 20th highest in terms of market capitalization. Buy below P11 per share.

Metrobank

Of all the banks, I think it’s one of the cheapest compared to book value and earnings. It is trading at just 8X P/E! Its peers like BPI and BDO are trading at much higher multiples and I see no reason why it should lag significantly. It has recently been trading at a range of P55 to P57 per share. Buy within this range.

From left: Luis Limlingan, Regina Capital Development Corp. head of sales; Claire Alviar, Philstocks Financial Inc, assistant manager for research and online engagement; Japhet Louis Tantiangco, Philstocks Financial Inc. senior research analyst; and Mikhail Plopenio, Philstocks Financial Inc. researcher.

Luis Limlingan, Regina Capital Development Corp. head of sales

Jollibee Foods Corp.

JFC sees recovery in its dine-in segment, aligned with the end of the pandemic. The recent wage hike would provide consumers with additional disposable income and with the easing of inflation to provide relief to consumers. Downtrend in inflation is projected to continue, with lower oil prices to lower overall costs. Potential store openings allow for a strong upside, and as the company enjoys better margins on better cost control.

Metrobank

MBT has more than sufficient nonperforming loan cover of 189.3 percent (as of first quarter 2023) should asset quality be affected by the currently high-interest rate environment. Its lending portfolio mainly catering to corporate loans is likely to continue benefiting from Bangko Sentral ng Pilipinas’ rate adjustments through net interest margin expansion. Being one of the largest universal banks in the Philippines, it is also capable to adjust its rates without losing much market share to competition.

International Container Terminal Services Inc.

With macroeconomic headwinds mellowing down this second half of 2023, we are expecting ICT’s trade operations to start picking back up again as it expands its port operations to key strategic locations across the world. ICT is highly likely to grow throughout the end of the year with the contribution of new terminals, negotiation of better tariffs and stricter operations management.

Claire Alviar, Philstocks Financial Inc, assistant manager for research and online engagement

SM Prime Holdings Inc.

SMPH posted robust performance in terms of revenue and net income last year, and we are optimistic that this trend will persist throughout this year. Nevertheless, we recognize the potential challenges posed by the high inflation rate in the country, which may impact consumer spending and the company’s costs, thus affecting its revenue growth and margins negatively. Despite these hurdles, we still see SMPH posting a decent growth this year.

In addition, the favorable prospect of a slowing inflation rate and a boost in tourism in the country may support the growth of SMPH, particularly from this year leading up to 2024.

Mikhail Plopenio, Philstocks Financial Inc. researcher

Puregold Price Club Inc.

Puregold, as one of the leading retailers at home, is seen to benefit from the easing inflation. Its business model positions itself to be one of the front-runners in the retail industry amid easing inflation. Additionally, the recent minimum wage hike could contribute to Puregold’s sales as the beneficiaries are under its market segment. The retailer also posted positive earnings results in the first half of the year with revenues growing 11 percent year on year to P91.2 billion.

Japhet Louis Tantiangco, Philstocks Financial Inc. senior research analyst

Metrobank

Still considering the advantages of banks amid the high interest rate environment, one of our stock picks is Metrobank. The share is trading at attractive levels with P/E ratio at 7.84X [as of press time], lower compared to the five-year average of 13.96X.

The bank has exhibited strong financial performance with its return on average equity in Q1 2023 at 10.3 percent, above its five-year average of 7.8 percent. This was driven by robust revenue generation amid healthy bank lending supported by high interest rates, and efficiency in operations.

Prospects are bright as we expect loan demand in the country to remain healthy amid the strong economy, though high interest rates may somehow pressure. MBT’s net interest margins are also expected to improve further while operating efficiency is expected to be sustained.

Dionill Jamil, ATR Asset Management head of equity research

Bank of the Philippine Islands

We like BPI because it has the fastest growing loans portfolio amongst the three big banks. The focus on consumer loans, particularly credit cards, is also a strong driver of loan growth and ultimately the return on equity, which has now expanded to 15.5 percent—the highest level in a decade.

We expect their leadership in digital transformation to enable better efficiency in generating returns on capital because of lower cost-to-income ratio. We are also giving weight to the strategy of agency banking. While its 1.6X price-to-book ratio is a premium to its peers, this valuation is at a discount to its pre-lockdown high.

Ayala Land Inc.

We expect ALI to benefit from a lower interest rate environment, when it happens, because of its higher exposure to residential property. While a deep discount to its net asset value is also a key factor, we also put value on its large land bank that can be utilized in the development of estates outside Metro Manila and propel next-cycle growth that can be funded by the monetization of assets such as AREIT.

First Gen Corp.

FGEN offers the most stable earnings profile and visibility given nearly all of their capacity is contracted. While their 10-percent public float has caused a deep derating, we think this discount makes the company’s valuations attractive at current prices.

The company, along with other generators, are positioned to be beneficiaries in the sector given the grid is currently a sellers’ market. We also note that the liquefied natural gas (LNG) terminal, which is set to start operations in third quarter 2023, would ease LNG supply constraints.

—WITH A REPORT FROM DORIS DUMLAO-ABADILLA