AMDG
In my previous article, I wrote about how oil could bring the Philippine Stock Exchange down to its knees, and the specifics of how several companies I have invested in could be affected.
Oil is so crucial to the global economy (to our very civilization, even) because it’s used in just about everything. Switch on a light, and oil comes to play at least in the following ways: one, there’s a chance the electricity that powers the light bulb is produced by a diesel or bunker fuel generator; two, that light bulb had to be made in a factory, which consumes oil for its equipment; three, the bulb, switch and wiring had to be trucked from the factory to the retail store where you bought it, a process that consumes oil; four, you had to go out and buy the bulb, hence more oil consumed by your commute; five, the rubbery insulation around the copper wire that connects the switch to he bulb is most likely an oil byproduct, as are most plastics that make up switches, light bulb housing, etc; six, your house, in which that light is located, had to be built by people who commute and equipment that had to be mobilized and that consume oil as they operate, all of which use materials that have to be freighted as well. Care to know about the oil needed to produce a spoonful of rice that’s on your plate right now? Or the oil needed to operate your computer or your car? How about the oil needed to fly the entire family to Boracay for a weekend vacation?
Needless to say, we all consume oil. It’s a resource around which our lifestyles revolve even in ways we are not aware of. Could we live without it? Sure we can! Just at a much slower pace, though – we might have to go back to lighting candles instead of switching on light bulbs. But as it is, with lives, business, economies, demands and supplies all living in the fast lane, rising oil prices is a very nasty speed bump. Rising oil makes everything else expensive, thus dampening demand, increasing costs and depressing world economies (with the possible exception of oil superpowers such as the Middle East, Venezuela, Nigeria, Russia and, soon, Canada).
So, what now? In the far, far future, what are the chances we’ll all end up like Mel Gibson in the movie Mad Max, scrounging for gasoline from wrecks of crashed cars and fighting off hordes of scantily-dressed, paltik-wielding gothic warriors just to protect a tanker truck of gasoline? Or those (again!) scantily-clad and paltik-wielding hippies in Waterworld, riding around in an oil tanker looking for dry land?
In my opinion, very little. As I have said before, oil itself isn’t what we buy when we pay for oil; it’s energy. Of course, oil in itself does have its own uses (think petroleum jelly or engine lubrication), but by and large, energy is what we buy when we pay for oil. And as a source of energy, oil is dirty, scarce, expensive and volatile. Think about it: in terms of oil being dirty, American gas guzzling cars contribute about 20% of all of America’s greenhouse gas emissions, and airlines contribute over 15% of all global-warming carbon output worldwide; oil spill such as the Exxon-Valdez more than two decades ago still have adverse effects to the Antarctic environment even to this day; as far as scarcity is concerned, in just a little over a century since oil was discovered as a source of energy, the human race has burned through what experts estimate to be about half of all the oil in the world, and the world isn’t in much of a hurry to make more of the stuff; expensive is self-explanatory; volatility – almost all the big oil players are countries that have a high degree of instability or propensity to use oil abusively as a political power-brokering tool (think Venezuela, Nigeria or Russia – even the Middle East fits this bill in some instances). As such, given that energy is what we pay for when we buy oil, and that oil is further and further becoming a less viable source of said energy, it’s only a matter of time before the wonders of one economic and marketing concept take effect: alternatives.
Alternatives, as the name suggests, is simply other options. Butter too expensive? Use margarine. No marlin? Buy sea bass. Can’t find any disinfectant for the scrape on your knee? Chew some malunggay or boil some guava leaves. Oil’s too expensive and dirty? Well, it’s about time alternative sources rise and meet the challenge, right?
I mean, who wouldn’t want a world run by clean and affordable energy from solar, wind, geothermal or hydrogen-based power sources? With clean energy, we would no longer be at the mercies of Venezuelan dictators or Russian autocrats holding back production, or Nigerian bandits blowing up oil pipelines, or even Wall Street fund managers pouring all their extra cash into oil and driving prices higher. We would also no longer be polluting the environment, and we avert the crisis of scantily-clad, paltik-wielding Goths or hippies fighting for the last ounces of oil on the planet.
But, you say, that’s not going to happen overnight! That might not even be viable considering we use so much oil that alternatives (even dirty ones like coal) could not possibly fill the void if you take oil out of the equation.
We have two rebuttals there: time frame and viability. In terms of the latter, this I have to say: never underestimate the power of technology and conservative consumption. Take France and Germany, for example. Germany, along with much of Europe, made a lot of noise when Russia, the main source of oil and natural gas for Europe, announced increases in the prices of oil and natural gas. But the French? They complained, but certainly not as much. This was because France has probably the most well-developed nuclear energy industry in the world, one that supplies for 75% of all their energy needs (by contrast, nuclear energy in America comprises only for 20% of total electric production). This lessened their dependence on Russian oil and natural gas for energy used for heating or running their homes and businesses. How about Iceland? Has anyone ever heard the placid people of Reykjavik complain about oil at over $134 a barrel? Hardly, I assume, because most their energy needs are provided for by hydroelectric and geothermal plants. Even right now, cars that run on less or no oil at all (everything from hybrids to compressed air to hydrogen-powered vehicles) are just years away from the mainstream production pipeline. Airplanes? That will probably take a while. It’s not like you can retrofit a jumbo jet with a nuclear reactor the way the U.S. navy did with their submarines, but who knows? That said, I do believe that we could live in a civilization and economy not dependent on oil (but probably in the relatively distant future, though).
As for the time frame, that might be a bit trickier. Experts say that oil may reach as high as $200 a barrel and may never come back down from there. With that, I mostly agree. But there’s also a small part of me that says that demand and supply pressures will take its toll. For one, the price of oil now is partly artificial, i.e., brought about by excess liquidity in the financial markets looking for a safe hedge against the flailing dollar and the sagging U.S. economy. Secondly, with oil prices this high, you suddenly have projects previously considered unfeasible becoming financially viable. Take for example the smaller fields being drilled or explored, or the sudden interest in local oil stocks the likes of OV or PERC, both of which are small-time drillers/explorers. There’s also the sand pits of Canada – a proven reserve of at least 173 billion barrels that was once too considered too expensive to extract that is now receiving billions of dollars worth of investments from giants such as Shell, ConocoPhillips and Exxon (to put that in perspective, Saudi Arabia’s proven reserves, the largest in the world, is 250 billion barrels). Thirdly, with oil this expensive, you also have the inevitable dampening in demand for it (though that probably won't apply to rapidly growing economies like China or India). In line with this, SUV sales in the U.S. have fallen 50% this year alone, and GM’s Rick Wagoner recently announced his company was halting the production of big cars for good and sticking to compacts, a process that will close down four major oil-consuming plants. Business and homes have learned the value of conservation, partly because of high oil prices and partly for the sake of the environment. Bicycle sales are surging, and investments into more effective and less energy-consuming forms of mass transit are booming as well (think China’s maglev trains). Money is also fast flowing into alternative energy R&D - billions of dollars paid to make solar cells cheaper and more efficient, wind turbines quieter and less resistant, etc.
(Notice that these demand-side effects of high oil are by and large irreversible: even if oil prices fall back to earth, there’s little chance the gas-guzzling SUV will make a comeback, or newly-minted green business will turn around and start polluting again just because they could once more afford to do so. Also, solar panels, wind turbines, offshore wave turbines and others are now providing for a growing chunk of energy needs, and the chances are nil that they will be decomissioned even when oil becomes cheap again, if ever that does happen.)
The last time oil prices spiked as suddenly as this was during the Iran-Iraq war of the 1980’s. With supplies from two major oil-producing countries disrupted, oil soared and the high prices prompted a wave of investments into oil exploration and drilling ventures. After the war, a glut followed: oil from Iran and Iraq streamed again along with all the other new oil fields, and the price of oil slumped. See any similarities? Rising oil prices, investors rushing to oil and further inflating prices, new investments meant to increase oil production, easing demand (well, excluding China and India, among others), the rise of alternatives, the fact that biggest oil field found this decade was in Canada – a stable country that’s just across the border of the world’s largest consumer of oil that also happens to be its close ally. Am I hinting at a bust? No, a bust would be too strong a word considering that, (one) at the end of the day, oil will still run out in a matter of decades (according to estimates of some experts – see last months’ National Geographic) and (two), China, India and other growing economies will most likely continue to increase their oil consumption despite high prices. But, if not a bust, I do expect a strong correction in the price of oil. When and how much, I can’t say – although I do hope it will come soon and in a significant amount because my portfolio’s just about dying.
This is why I haven’t sold out of the PSE yet. Even though BSP expects double digit inflation later this year due to expensive oil, I believe it will only be a matter of time until hot money oozes out of oil to find emerging market stocks grossly undervalued. Throw in the fundie bandwagon mentality along with the correction in oil that I’m hoping for, and maybe we could see the PSEI hitting the long-elusive 4,000-point mark.
Of course, my crystal ball could be cracked too, and the PSEI descends into non-existence. I lose money and those who followed my cockamamie theories lose money too. By that time, my only hope is that readers of this blog don’t throw me to the hordes of scantily-clad, paltik-wielding hippies that would be roaming the planet to be eaten alive, or worse, to be dressed the way they are. Damn you, Mel Gibson and Kevin Costner!!!
Tuesday, June 17, 2008
Thursday, June 12, 2008
Oil at $200?
AMDG
When Goldman Sachs first predicted oil would reach $100 a barrel before the decade was out, they were laughed at. This was back in 2005, when oil was selling at a paltry $40-$50 per barrel (source: Philequity corner, Philippine Star, May 12, 2008). But now, not only has oil hit the $100 mark, it has surpassed it by almost 40% even way before the year 2010. What’s scarier is this: the latest Goldman Sachs study showed possibly oil reaching $200 per barrel before 2010, double what they had originally forecasted. That frightening figure is no longer drawing laughs of incredulity this time around, although I wish it were so I could laugh nervously along. Nope, this time around the $200 per barrel figure is actually within the estimates of many other respected fund managers, investment banks and industry analysts.
So what’s a small time stock exchange investor like me to do? Sell? Transfer to less inflation-sensitive ventures like drugs or gun-running? Try setting aside a percentage of my portfolio to a “poker fund” or “blackjack investments”? I’d actually try tong-its (people say I’m good at it), but instead of cash, tong-its winners only get bottles of long-neck Tanduay rum – good luck sending my kids to college with that.
It is an understatement to say that oil hitting $200 per barrel won’t bode well for the global economy. That said, l could expect my holdings to go south as well.
In my past entries about AGI, I expressed confidence in this stock despite the subprime crisis and the depreciating Peso, but admitted its considerable vulnerability to high inflation due to its largely consumer client base. With rising oil prices being the grandmother of all inflationary pressures today, my fear of AGI’s susceptibility is once more keeping me up at night.
Another problem of mine regarding rising oil prices and rising inflation would be my real estate stocks, namely: SMDC and, again, AGI (AGI owns 46% of MEG. MEG, in turn, contributes 39% and 65% of AGI’s total revenue and net income, respectively. MEG is also the is fastest growing revenue source for AGI). Rising oil prices is a double whammy if you’re in real estate: your production cost goes up significantly (bulldozers, trucks, cranes, cement mixers and what not don’t run on magic or nuclear fuel; everything used for construction – steel bars, cement, aggregates, nails – goes up too because of more expensive freight) while the capacity of your potential markets to buy goes down significantly as well. Not to mention high oil and inflation depresses the Stock Exchange, the other Achilles’ Heel of SMDC.
COAT is one of those stocks which is not totally affected by rising oil prices. Of course, their production costs would likely go up (I’m sure they’ll have to haul stuff around in trucks or something). Unlike real estate, though, rising oil prices will make the products of COAT more attractive to buyers, especially their oleochemical-derived biodiesel. Add to rising oil prices the emerging awareness against air pollution and global warming, and COAT’s biodiesel becomes more likeable on a less consumerist and more civic and environmental level. One need only to look at green companies in the U.S. or China whose stocks have doubled or tripled in the past two years, and the potential of COAT becomes evident.
However, COAT – in my humble opinion – seems to be a company that’s too conservative for its own good. Current ratio is above 9, and debt comprises a minuscule 7.4% of equity. While this state of financial health is amazing for conservatives (I really liked it too the first time I saw it), I believe COAT may not be doing enough to prepare for the future and take advantage of the opportunity at its doorstep. Case in point: capex for COAT for the first quarter of 2008? P20M – microscopic for a company with P3.1B in equity, almost P3.4B in total assets, P480M in net income last year and possibly the largest market share in an industry set to double (at the very least) in size come February of 2009 when the mandatory biofuel blend for diesel as per the Biofuels Act becomes 2%.
Another stock that I’ve been looking at lately that might not be as vulnerable to rising oil prices is AP. With 78% of AP’s revenues coming from power distribution, and with its power plants drawing electricity from coal, geothermal and hydropower, the impact of rising oil prices is minimized (although rising oil prices will make the construction of future plants more expensive). Moreover, with AP’s thrust to draw more electricity from clean, renewable and, most importantly, affordable sources, their product might become a more attractive alternative to oil. (Since oil is a substance whose end byproduct is energy, this is what it essentially is, i.e., energy is what you pay for when you buy oil. As such, AP’s product – energy drawn from coal, hydro or geothermal sources – has the capacity to compete directly with oil. This will not happen overnight, of course, but think long term: electric cars being fueled by electricity from hydroelectric or geothermal power plants. Who knows? Maybe wind farms and solar power plants may even add to that mix.)
However, I feel the time to buy AP may have come and gone. In the third quarter of last year, AP reached a low of P3.90, just a little more than P0.20 shy of its 2007 yearend book value. Now, at P5.50-P5.60, I feel AP may be too expensive for the meantime.
When Goldman Sachs first predicted oil would reach $100 a barrel before the decade was out, they were laughed at. This was back in 2005, when oil was selling at a paltry $40-$50 per barrel (source: Philequity corner, Philippine Star, May 12, 2008). But now, not only has oil hit the $100 mark, it has surpassed it by almost 40% even way before the year 2010. What’s scarier is this: the latest Goldman Sachs study showed possibly oil reaching $200 per barrel before 2010, double what they had originally forecasted. That frightening figure is no longer drawing laughs of incredulity this time around, although I wish it were so I could laugh nervously along. Nope, this time around the $200 per barrel figure is actually within the estimates of many other respected fund managers, investment banks and industry analysts.
So what’s a small time stock exchange investor like me to do? Sell? Transfer to less inflation-sensitive ventures like drugs or gun-running? Try setting aside a percentage of my portfolio to a “poker fund” or “blackjack investments”? I’d actually try tong-its (people say I’m good at it), but instead of cash, tong-its winners only get bottles of long-neck Tanduay rum – good luck sending my kids to college with that.
It is an understatement to say that oil hitting $200 per barrel won’t bode well for the global economy. That said, l could expect my holdings to go south as well.
In my past entries about AGI, I expressed confidence in this stock despite the subprime crisis and the depreciating Peso, but admitted its considerable vulnerability to high inflation due to its largely consumer client base. With rising oil prices being the grandmother of all inflationary pressures today, my fear of AGI’s susceptibility is once more keeping me up at night.
Another problem of mine regarding rising oil prices and rising inflation would be my real estate stocks, namely: SMDC and, again, AGI (AGI owns 46% of MEG. MEG, in turn, contributes 39% and 65% of AGI’s total revenue and net income, respectively. MEG is also the is fastest growing revenue source for AGI). Rising oil prices is a double whammy if you’re in real estate: your production cost goes up significantly (bulldozers, trucks, cranes, cement mixers and what not don’t run on magic or nuclear fuel; everything used for construction – steel bars, cement, aggregates, nails – goes up too because of more expensive freight) while the capacity of your potential markets to buy goes down significantly as well. Not to mention high oil and inflation depresses the Stock Exchange, the other Achilles’ Heel of SMDC.
COAT is one of those stocks which is not totally affected by rising oil prices. Of course, their production costs would likely go up (I’m sure they’ll have to haul stuff around in trucks or something). Unlike real estate, though, rising oil prices will make the products of COAT more attractive to buyers, especially their oleochemical-derived biodiesel. Add to rising oil prices the emerging awareness against air pollution and global warming, and COAT’s biodiesel becomes more likeable on a less consumerist and more civic and environmental level. One need only to look at green companies in the U.S. or China whose stocks have doubled or tripled in the past two years, and the potential of COAT becomes evident.
However, COAT – in my humble opinion – seems to be a company that’s too conservative for its own good. Current ratio is above 9, and debt comprises a minuscule 7.4% of equity. While this state of financial health is amazing for conservatives (I really liked it too the first time I saw it), I believe COAT may not be doing enough to prepare for the future and take advantage of the opportunity at its doorstep. Case in point: capex for COAT for the first quarter of 2008? P20M – microscopic for a company with P3.1B in equity, almost P3.4B in total assets, P480M in net income last year and possibly the largest market share in an industry set to double (at the very least) in size come February of 2009 when the mandatory biofuel blend for diesel as per the Biofuels Act becomes 2%.
Another stock that I’ve been looking at lately that might not be as vulnerable to rising oil prices is AP. With 78% of AP’s revenues coming from power distribution, and with its power plants drawing electricity from coal, geothermal and hydropower, the impact of rising oil prices is minimized (although rising oil prices will make the construction of future plants more expensive). Moreover, with AP’s thrust to draw more electricity from clean, renewable and, most importantly, affordable sources, their product might become a more attractive alternative to oil. (Since oil is a substance whose end byproduct is energy, this is what it essentially is, i.e., energy is what you pay for when you buy oil. As such, AP’s product – energy drawn from coal, hydro or geothermal sources – has the capacity to compete directly with oil. This will not happen overnight, of course, but think long term: electric cars being fueled by electricity from hydroelectric or geothermal power plants. Who knows? Maybe wind farms and solar power plants may even add to that mix.)
However, I feel the time to buy AP may have come and gone. In the third quarter of last year, AP reached a low of P3.90, just a little more than P0.20 shy of its 2007 yearend book value. Now, at P5.50-P5.60, I feel AP may be too expensive for the meantime.
Wednesday, June 4, 2008
Inflation at 9.6%, according to my broker
AMDG
Inflation numbers came out today: 9.6%! That’s almost as heavy as my newborn son (9.2 pounds – delivered normally. Kudos to the Missis). Another similarity between inflation and my son: both are going to be taking money out of my wallet. One difference: unless my son grows up to be a thief, inflation takes away money from EVERYBODY’S wallets. Rich or poor, young or old, man or woman. It’s like a shotgun: indiscriminate and just blows away anything that’s in front of it.
It’s bad enough that inflation’s going to pick at my wallet, it’s also going to crush demand and bring up production costs, in effect killing business, dragging down the PSE and slowly bleeding my already-anemic portfolio.
Markets already went down heavily two days ago and traded cautiously on the negative side yesterday ahead of the inflation numbers coming out. That’s not much of a wonder considering people have been talking about inflation to be at double digits since last week. I haven’t checked the PSE yet, but I wouldn’t be surprised if we see another 1++% dip in the index today.
How long will the market malady last because of the latest inflation numbers? I can’t say. I think the more important question is, How long will this high level of inflation go on? As long as inflation remains as high as it is, there’s very little chance the PSE can find the momentum it needs to break the 3,000-point mark, much less reach 4,000 points.
I have recently considered selling some of my holdings to transfer to other stocks, or just to hold on to the cash until prices bottom out. The problem of course is that trying to outsmart the market on a short-term basis is very tricky. It takes a lot of skill and time devoted to studying. Unfortunately, with a nine-to-six grind and two kids to take care of when I get home, I do not have the luxury of time that I could spend studying charts and market trends on a daily basis (I still haven’t even finished reading some of the annual reports of the companies in my watchlist). So for me, it’s just average down when I have the money and watch my portfolio bleed when I don’t while I listen to my son cry and my daughter sing ABC and Happy Birthday at the top of her voice while running around our bedroom. All of that while hoping that the decisions I made based on sober research when I first bought the companies I’m into now were accurate. Yes, yes, my life is glamor galore.
My consolation: in sixteen years, my son would be in freshman college while my daughter will be in her junior year. By then, I could possibly retire from my nine-to-six (at a tender age of forty-four) and my portfolio would be so big (hopefully!!!) that I could consider myself filthy rich. Then I’ll spend my time taking photographs, planting trees or propagating coral reefs, riding my mountain bike (that I still have to buy), scuba diving, working for NGO’s with environmental or grassroots livelihood causes, traveling and resting.
Hey, if you’re dreaming, you might as well dream big, right? Ok, now I have to stop typing and get back to work.
Peace out!
Inflation numbers came out today: 9.6%! That’s almost as heavy as my newborn son (9.2 pounds – delivered normally. Kudos to the Missis). Another similarity between inflation and my son: both are going to be taking money out of my wallet. One difference: unless my son grows up to be a thief, inflation takes away money from EVERYBODY’S wallets. Rich or poor, young or old, man or woman. It’s like a shotgun: indiscriminate and just blows away anything that’s in front of it.
It’s bad enough that inflation’s going to pick at my wallet, it’s also going to crush demand and bring up production costs, in effect killing business, dragging down the PSE and slowly bleeding my already-anemic portfolio.
Markets already went down heavily two days ago and traded cautiously on the negative side yesterday ahead of the inflation numbers coming out. That’s not much of a wonder considering people have been talking about inflation to be at double digits since last week. I haven’t checked the PSE yet, but I wouldn’t be surprised if we see another 1++% dip in the index today.
How long will the market malady last because of the latest inflation numbers? I can’t say. I think the more important question is, How long will this high level of inflation go on? As long as inflation remains as high as it is, there’s very little chance the PSE can find the momentum it needs to break the 3,000-point mark, much less reach 4,000 points.
I have recently considered selling some of my holdings to transfer to other stocks, or just to hold on to the cash until prices bottom out. The problem of course is that trying to outsmart the market on a short-term basis is very tricky. It takes a lot of skill and time devoted to studying. Unfortunately, with a nine-to-six grind and two kids to take care of when I get home, I do not have the luxury of time that I could spend studying charts and market trends on a daily basis (I still haven’t even finished reading some of the annual reports of the companies in my watchlist). So for me, it’s just average down when I have the money and watch my portfolio bleed when I don’t while I listen to my son cry and my daughter sing ABC and Happy Birthday at the top of her voice while running around our bedroom. All of that while hoping that the decisions I made based on sober research when I first bought the companies I’m into now were accurate. Yes, yes, my life is glamor galore.
My consolation: in sixteen years, my son would be in freshman college while my daughter will be in her junior year. By then, I could possibly retire from my nine-to-six (at a tender age of forty-four) and my portfolio would be so big (hopefully!!!) that I could consider myself filthy rich. Then I’ll spend my time taking photographs, planting trees or propagating coral reefs, riding my mountain bike (that I still have to buy), scuba diving, working for NGO’s with environmental or grassroots livelihood causes, traveling and resting.
Hey, if you’re dreaming, you might as well dream big, right? Ok, now I have to stop typing and get back to work.
Peace out!
Keep SMDC in your watchlist?
AMDG
The first time I bought SMDC was in June of 2006, thanks to a word of advise from my friend chiefstocks. My average purchase price then was P1.59 and I sold it eleven months later at almost P5. Needless to say, it was the brightest star in my portfolio at the time.
After the downturn in the PSE caused by the U.S. subprime meltdown, I got into SMDC again, buying it at what I thought then was a discounted price of P3.95. We know now how wrong I was then, and I’ve been averaging down ever since. What was then the jet engine letting my portfolio soar in the sky is now the anchor that’s weighing my portfolio down and dragging it through the mud. Experience may be the best teacher, but she sure charges a heck of a tuition fee too!
Now, SMDC is trading at P2.20. At this price, you’re more than P0.20 below book value per share (a discount of almost 10%). Also, based on 2007 earnings, you would be just a little over six times earnings per share. Talk about a cheap price to pay for a company that made P1.2 billion in 2007 – a 13% return on equity. Add to that factors like the fact that it’s backed by the Sy family, that it has first dibs on all (yes, ALL!) of SM-related properties like BDO-EPCI and CHIB ROPOA, lots beside SM malls (as a matter of policy, SM buys areas larger than the malls they build on it) and that its real estate project sales growth figures are at triple digits and it would seem irresistible.
Just looking at the 2007 figures would make SMDC the Miss Universe finalist of the PSE. Dig a little bit deeper though, and you would see that of the P1.2 billion it made last year, over P600 million was made during the first quarter on the back of stellar mark-to-market gains. After the stock market collapse, SMDC made less and less every quarter (although the figure it ended up with still made it look terrific, thanks in no small part to its real estate operations). With around 47% of the company today still composed of equity holdings, it was no wonder SMDC was among the worst-hit when stocks nosedived: it made a meager P14 million for the first quarter of 2008, absorbing unrealized mark-to-market losses of over P320M. With the bottom line just 2 % of what it made the same period of last year, P14M is just a “Hey look ma! I’m still alive!” earnings report.
Imagine it: if SMDC were to keep on making just P14M for the next three quarters, that would be a total net income of P56M for the whole of 2008, giving us an almost non-existent ROE of 0.60%. That’s if SMDC continues to make profit at all; with the PSEI continuing to languish below 3,000, the prospect of that might be out of reach.
Of course, there’s always the specter of rising inflation hovering above even the sunniest predictions as far as SMDC – being an inflation-vulnerable combination of a real estate and equities investments company– is concerned. I wouldn’t be surprised to see SMDC fall below the P2.00 level should inflation go even higher than it already is and should the BSP decide to raise rates to stave it off.
But there is a silver lining: SMDC’s real estate operations. As mentioned earlier, sales growth figures are at triple digits, and SMDC’s pipeline of new projects looks tremendously busy (Lindenwood, Berkeley, Mezza and Grass Residences are all currently under construction). Even though SMDC is a relatively small player in a field dominated by giants like ALI and MEG, its near-unrestricted access to SM Group real estate more than ensures its survival in such a competitive industry (cases in point: the Mezza Residences across SM City Sta. Mesa and the Grass Residences near SM North EDSA). Its working capital (come on, who has more money than Henry Sy here in RP?) also ensures that, as a real estate company, it could afford to wait should sales stall due to rising inflation or other crises (continuing that line of thinking though, the question now becomes “If Henry Sy could afford to wait, he being filthy rich and all, could I afford to do the same?”).
Then, there’s also the long-term outlook of Philippine stocks. Personally, I see the light at the end of the PSE tunnel coming early next year, if not late this year (very bright and sunny, I know). At that point, you will have SMDC’s equity holdings, assuming SMDC doesn’t sell them before then, coming back to life and contributing once more to the company’s bottom line.
Now, here’s a daydream: the PSE comeback occurring in tandem with SMDC’s exponential real estate operations growth. It’s not that far-fetched, in my humble opinion, and may come sooner than expected. So is SMDC a good buy at P2.20? The risks involved are high, but I would hesitantly say yes.
P.S. My wife gave girth on the 26th of May, 2008. It’s a boy!
The first time I bought SMDC was in June of 2006, thanks to a word of advise from my friend chiefstocks. My average purchase price then was P1.59 and I sold it eleven months later at almost P5. Needless to say, it was the brightest star in my portfolio at the time.
After the downturn in the PSE caused by the U.S. subprime meltdown, I got into SMDC again, buying it at what I thought then was a discounted price of P3.95. We know now how wrong I was then, and I’ve been averaging down ever since. What was then the jet engine letting my portfolio soar in the sky is now the anchor that’s weighing my portfolio down and dragging it through the mud. Experience may be the best teacher, but she sure charges a heck of a tuition fee too!
Now, SMDC is trading at P2.20. At this price, you’re more than P0.20 below book value per share (a discount of almost 10%). Also, based on 2007 earnings, you would be just a little over six times earnings per share. Talk about a cheap price to pay for a company that made P1.2 billion in 2007 – a 13% return on equity. Add to that factors like the fact that it’s backed by the Sy family, that it has first dibs on all (yes, ALL!) of SM-related properties like BDO-EPCI and CHIB ROPOA, lots beside SM malls (as a matter of policy, SM buys areas larger than the malls they build on it) and that its real estate project sales growth figures are at triple digits and it would seem irresistible.
Just looking at the 2007 figures would make SMDC the Miss Universe finalist of the PSE. Dig a little bit deeper though, and you would see that of the P1.2 billion it made last year, over P600 million was made during the first quarter on the back of stellar mark-to-market gains. After the stock market collapse, SMDC made less and less every quarter (although the figure it ended up with still made it look terrific, thanks in no small part to its real estate operations). With around 47% of the company today still composed of equity holdings, it was no wonder SMDC was among the worst-hit when stocks nosedived: it made a meager P14 million for the first quarter of 2008, absorbing unrealized mark-to-market losses of over P320M. With the bottom line just 2 % of what it made the same period of last year, P14M is just a “Hey look ma! I’m still alive!” earnings report.
Imagine it: if SMDC were to keep on making just P14M for the next three quarters, that would be a total net income of P56M for the whole of 2008, giving us an almost non-existent ROE of 0.60%. That’s if SMDC continues to make profit at all; with the PSEI continuing to languish below 3,000, the prospect of that might be out of reach.
Of course, there’s always the specter of rising inflation hovering above even the sunniest predictions as far as SMDC – being an inflation-vulnerable combination of a real estate and equities investments company– is concerned. I wouldn’t be surprised to see SMDC fall below the P2.00 level should inflation go even higher than it already is and should the BSP decide to raise rates to stave it off.
But there is a silver lining: SMDC’s real estate operations. As mentioned earlier, sales growth figures are at triple digits, and SMDC’s pipeline of new projects looks tremendously busy (Lindenwood, Berkeley, Mezza and Grass Residences are all currently under construction). Even though SMDC is a relatively small player in a field dominated by giants like ALI and MEG, its near-unrestricted access to SM Group real estate more than ensures its survival in such a competitive industry (cases in point: the Mezza Residences across SM City Sta. Mesa and the Grass Residences near SM North EDSA). Its working capital (come on, who has more money than Henry Sy here in RP?) also ensures that, as a real estate company, it could afford to wait should sales stall due to rising inflation or other crises (continuing that line of thinking though, the question now becomes “If Henry Sy could afford to wait, he being filthy rich and all, could I afford to do the same?”).
Then, there’s also the long-term outlook of Philippine stocks. Personally, I see the light at the end of the PSE tunnel coming early next year, if not late this year (very bright and sunny, I know). At that point, you will have SMDC’s equity holdings, assuming SMDC doesn’t sell them before then, coming back to life and contributing once more to the company’s bottom line.
Now, here’s a daydream: the PSE comeback occurring in tandem with SMDC’s exponential real estate operations growth. It’s not that far-fetched, in my humble opinion, and may come sooner than expected. So is SMDC a good buy at P2.20? The risks involved are high, but I would hesitantly say yes.
P.S. My wife gave girth on the 26th of May, 2008. It’s a boy!
Saturday, May 17, 2008
Another accident in Iloilo
AMDG
Yes, it has happened again. And it’s worse than that Britney Spears song with the similar title. Much, much worse. That’s saying a lot considering how bad the song is.
This has nothing to do with the PSE, but let me just gripe here.
A few entries ago, I wrote about how my younger brother got into a car accident, and how that accident may have been avoided if only our local government leaders and traffic cops had even just half of the initiative and work ethic of a sloth (yes, those idiots are lazier and dumber than sloth, by far).
You see, this was what happened. I was driving home one night at around fifty kilometers per hour. I was in our Hyundai Starex, the same one my bro got into an accident in several months back. As usual, it was dark, and streetlights weren’t working. To make road visibility worse, it was drizzling and the road had so much puddles it was like driving on a shallow lake. Suddenly, I see something that looked like a rock on the right side of the road. Too late to brake or swerve, I ran over it, making our good but accident-prone vehicle jump up its right side. I still managed to drive the car home, although the steering wheel was now badly veering to the right and there seemed to be some clunking noises coming from that side too (I checked the wheel, but it wasn’t flat).
I went through the motions when I got home: parked the car, got a flashlight, got down on all fours and tried to see what the damage was. Knowing as much about cars as a blonde bombshell, I didn’t really get far with the car inspecting thing. So got the keys to our pick up and went back to the crime scene (yes, crime scene, with the said term more specifically justified as the following: the scene of an accident caused by the stupidity and ineptness of our local government leaders that’s just so appallingly vulgar, it should be a crime). Guess what I saw? A log!!! As in, a wooden log around half a foot thick and around five feet long just lying there, right smack in the middle of a lane! Imagine that! A “highly urbanized center” whose national roads have a LOG in the middle of it! Seriously!
Looking around the scene again I saw why it was even harder to see before I ran over it. Coming down from Tabuc Suba bridge in Jaro, there’s a long stretch of road where the streetlights don’t work. Farther down the road, the lights come on when you reach Iloilo Supermart. That means when I was coming down from the bridge, the wooden log was not just hard to see because there were no streetlights and because of the pooling water, but also because it was backlit by the lights farther down the road. Imagine if I had been driving a motorcycle...
Fast forward. After everyone found out about the accident, theories came out as to why that log was there: “there’s a guy selling meat on a table on the sidewalk where you ran over the log, so maybe he put the log there so cars won’t run through the puddles on the road and splash water on him” or “it was the jeep drivers who put it there for their strike”. Right now, I don’t care so much why it was there as much as I care why nobody ever took it out. After all, our “honorable” governor and his “honorable” councilor son drive through that same road. Are they so short-sighted that they don’t see the hazard of a piece of log lying around on an ill-lit national highway? What about our traffic cops? Too busy scratching their balls? And our “honorable” mayor? Too busy worrying about his case at the Ombudsman about that white elephant housing project (that case got halted though…wonder why…)?
You see, it’s not just the sorely lacking infrastructure that’s the problem here in Iloilo, it’s also that – one – most Ilonggos don’t even know how to use infrastructure properly and that – two – local government’s just sitting on its ass instead of enforcing discipline and improving roads.
The only reason I heard for the accident that doesn’t come back to local government incompetence was from my younger bro: he said, "that car’s got plenty of bad luck". Me, I’d rather blame all those monkeys we call honorable. Makes me feel all warm and fuzzy inside.
Yes, it has happened again. And it’s worse than that Britney Spears song with the similar title. Much, much worse. That’s saying a lot considering how bad the song is.
This has nothing to do with the PSE, but let me just gripe here.
A few entries ago, I wrote about how my younger brother got into a car accident, and how that accident may have been avoided if only our local government leaders and traffic cops had even just half of the initiative and work ethic of a sloth (yes, those idiots are lazier and dumber than sloth, by far).
You see, this was what happened. I was driving home one night at around fifty kilometers per hour. I was in our Hyundai Starex, the same one my bro got into an accident in several months back. As usual, it was dark, and streetlights weren’t working. To make road visibility worse, it was drizzling and the road had so much puddles it was like driving on a shallow lake. Suddenly, I see something that looked like a rock on the right side of the road. Too late to brake or swerve, I ran over it, making our good but accident-prone vehicle jump up its right side. I still managed to drive the car home, although the steering wheel was now badly veering to the right and there seemed to be some clunking noises coming from that side too (I checked the wheel, but it wasn’t flat).
I went through the motions when I got home: parked the car, got a flashlight, got down on all fours and tried to see what the damage was. Knowing as much about cars as a blonde bombshell, I didn’t really get far with the car inspecting thing. So got the keys to our pick up and went back to the crime scene (yes, crime scene, with the said term more specifically justified as the following: the scene of an accident caused by the stupidity and ineptness of our local government leaders that’s just so appallingly vulgar, it should be a crime). Guess what I saw? A log!!! As in, a wooden log around half a foot thick and around five feet long just lying there, right smack in the middle of a lane! Imagine that! A “highly urbanized center” whose national roads have a LOG in the middle of it! Seriously!
Looking around the scene again I saw why it was even harder to see before I ran over it. Coming down from Tabuc Suba bridge in Jaro, there’s a long stretch of road where the streetlights don’t work. Farther down the road, the lights come on when you reach Iloilo Supermart. That means when I was coming down from the bridge, the wooden log was not just hard to see because there were no streetlights and because of the pooling water, but also because it was backlit by the lights farther down the road. Imagine if I had been driving a motorcycle...
Fast forward. After everyone found out about the accident, theories came out as to why that log was there: “there’s a guy selling meat on a table on the sidewalk where you ran over the log, so maybe he put the log there so cars won’t run through the puddles on the road and splash water on him” or “it was the jeep drivers who put it there for their strike”. Right now, I don’t care so much why it was there as much as I care why nobody ever took it out. After all, our “honorable” governor and his “honorable” councilor son drive through that same road. Are they so short-sighted that they don’t see the hazard of a piece of log lying around on an ill-lit national highway? What about our traffic cops? Too busy scratching their balls? And our “honorable” mayor? Too busy worrying about his case at the Ombudsman about that white elephant housing project (that case got halted though…wonder why…)?
You see, it’s not just the sorely lacking infrastructure that’s the problem here in Iloilo, it’s also that – one – most Ilonggos don’t even know how to use infrastructure properly and that – two – local government’s just sitting on its ass instead of enforcing discipline and improving roads.
The only reason I heard for the accident that doesn’t come back to local government incompetence was from my younger bro: he said, "that car’s got plenty of bad luck". Me, I’d rather blame all those monkeys we call honorable. Makes me feel all warm and fuzzy inside.
Thursday, April 17, 2008
follow up
AMDG
As if to confirm my previous blog entry, news came out that OFW remittances rose 15% for the period of January to February of 2008 versus the same period last year to $2.5B. At the average current exchange rate, that’s more or less a whopping ONE HUNDRED BILLION PESOS. Imagine that, P100B feeding into the Filipino consumer machine.
Of course, last year $2.5B would have been around P125B – no small loss brought about by the depreciation of the dollar. Moreover, after knocking off inflation numbers from the rate of increase in the remittances, we could see that this 15% growth isn’t quite as impressive as it should be. But despite all odds and notwithstanding domestic inflation and unfavorable exchange rates, the Overseas Filipino Worker still managed to send home more money than he did last year – money that will fuel not just the country’s economy but the country itself past obstacles put in place by the very people mandated to do the exact opposite. Truly, the OFW is the modern Filipino hero.
In related news, I (I-remit) posted a net income of P113.29M for 2007, a 167% increase from P42.48M in 2006. This is very impressive, and is evidence of the strong growth potential that I believe I has. At current prices though, I still find I a bit too expensive. At P3.45 per share, I is trading beyond three times its book value and over seventeen times its earnings (as per 3q07 figures, at least). As impressive as I’s strong growth prospects are, I think this is more than a reasonable premium amount to pay for I.
As if to confirm my previous blog entry, news came out that OFW remittances rose 15% for the period of January to February of 2008 versus the same period last year to $2.5B. At the average current exchange rate, that’s more or less a whopping ONE HUNDRED BILLION PESOS. Imagine that, P100B feeding into the Filipino consumer machine.
Of course, last year $2.5B would have been around P125B – no small loss brought about by the depreciation of the dollar. Moreover, after knocking off inflation numbers from the rate of increase in the remittances, we could see that this 15% growth isn’t quite as impressive as it should be. But despite all odds and notwithstanding domestic inflation and unfavorable exchange rates, the Overseas Filipino Worker still managed to send home more money than he did last year – money that will fuel not just the country’s economy but the country itself past obstacles put in place by the very people mandated to do the exact opposite. Truly, the OFW is the modern Filipino hero.
In related news, I (I-remit) posted a net income of P113.29M for 2007, a 167% increase from P42.48M in 2006. This is very impressive, and is evidence of the strong growth potential that I believe I has. At current prices though, I still find I a bit too expensive. At P3.45 per share, I is trading beyond three times its book value and over seventeen times its earnings (as per 3q07 figures, at least). As impressive as I’s strong growth prospects are, I think this is more than a reasonable premium amount to pay for I.
Tuesday, April 15, 2008
AGI and inflation
AMDG
Several blog entries ago, I wrote about the relative resilience of the Filipino consumer and about how, in my humble opinion, it won’t be affected so much by the economic downturn in the United States. I had several reasons for this, namely:
1. OFW’s – probably the most significant source of funding for Filipino consumer spending – are more geographically diversified now. Although the highest concentration of OFW’s is still in the United States (33%, or 2,728,209 of the estimated 8,233,172 individuals as per POEA’s 2006 data), they are now no longer the majority. Moreover, there has been a growing trend of OFW’s seeking greener pastures in countries aside from the U.S. Even though they tend to earn less and work manually in these countries, it still represents a diversification that would buffer us from the U.S. slowdown.
2. Even though the U.S. holds just 33% of total estimated OFW’s, they still account for more than half of total remittances ($6.5B of the total of $12.7B for 2006). At around $2,380 remitted per person (versus the overall average of around $1,540 per person), this indicates that the OFW’s in America are relatively higher paid and, unless most of them are Realtors or employees of Bear Stearns, less vulnerable from the adverse effects of an economic downturn. (Note, LESS vulnerable. Surely, there will be a fallout, but I’d bet the white collar workers would be better protected than the blue collar workers. And since blue collared Filipinos are more commonly found in places like Saudi, UAE, Hong Kong, Italy and Japan – places where the aftershocks of the credit crunch would be less than in the U.S. itself – we could more or less count on less adverse effects to their remittances from those countries.)
3. Aside from geographic diversification, OFW’s are now more diversified in terms of profession. Remember back in the 80’s when then-President Cory lost her temper over a dictionary’s definition of Filipina as “a domestic helper”? Well, today, while the majority of human resource exports by the Philippines is still blue-collar, we now have a higher percentage of white-collar professionals. Not only does this translate to higher incomes and consequently higher remittance volumes, but this diversification also provides a buffer against economic crises.
4. Even though the greenback has lost almost 25% to the peso in the past year or so, there is no denying that the former is around forty times stronger than the latter despite that. To illustrate this, consider the following: a high-end condo unit in Makati sells for an amortization of about twenty to thirty thousand pesos a month. That’s just five to seven hundred dollars in a MONTH! A nurse in the U.S., Middle East or in Europe (and there are plenty of Filipinos in this profession) earns that much money in a couple of DAYS. So does an engineer, chemist or a seaman. For most manual Filipino laborers abroad, it might take longer than just a couple of days to earn that kind of money, but we’re talking about prime Makati real estate here. If a manual laborer were to buy property in, say, Iloilo (where monthly amortizations can be as low as P6,000 for middle-income lots not mortgaged to the HDMF), he would still be very easily capable of doing so. Now, apply that purchasing power to everything else: flat-screen TV’s, cars, McDonald’s burgers. Granted, the dollar today won’t get one as far as it used to, but one with dollars here in the Philippines could still live like a king. What that translates into is a still-relatively strong incentive to send money home, thus giving power to the Filipino consumer.
5. Despite the global slowdown, we’re still sending out (as I’ve said in earlier blogs) more than a million warm bodies a year – more than half our population growth and probably enough to melt the polar ice caps if all OFW’s since the time of Ramos were sent to the North or South poles. (It’s cold, they’ll all have to pee, the warm urine raises water temperatures…CRACK!! Oops! Was that another ice shelf falling off? Imagine the headache that’s going to give Al Gore.) While there’s no denying a U.S. economic slowdown and weaker dollar will whittle down on the remittances sent per OFW, this shotgun approach of just sending out as many people as possible should provide a safeguard and maintain the volume and value of COLLECTIVE remittances by OFW’s. In simpler terms, more OFW’s = more remittances, even if each one sends less money (well, hopefully, at least).
Of course, I could be wrong. Even though I have a minor degree in Economics, my major was cutting class, so my qualifications are second-rate at best. Plus, the U.S. is the biggest economy in the world, so big that if you combine the economies of China and India and multiply that three times, you’d still fall short of Uncle Sam’s GDP. And with consumer spending (the sector most affected by economic downturns) making up for 67% of the U.S. economy, it’s easy to imagine how badly affected the countries that feed the American consumer will be, Philippines included. But it’s for the reasons above that I had believed we could ride out the U.S. subprime meltdown/recession without having a major meltdown of our own, at least as far as domestic consumption is concerned.
Well, that is, I BELIEVED (note: it’s in the past tense), until last week or so when food crises dotted the headlines, and inflation skyrocketed to 6.4% from a very cushy 2.2% last year. The present tense verb that I use more now to describe how I feel about the Philippine consumer market in the light of latest developments is “WORRY”.
For the past months now, I’ve watched how commodity prices in Bloomberg’s ticker tapes were always green, while equities were always red. There was a small voice in my head warning about the possible inflationary pressures (as well as the voices of true-blue economists on TV warning of stagflation) of fundies rushing from equities to commodities, but I was too busy watching the price of gold for my PX to pay heed to all those doomsday voices. And now we can’t have adequate rice supplies until 2011 (at least according to government sources), can no longer have cheap pan de sal because of atrocious wheat and flour prices, cannot eat meat, poultry and fish as easily because of their prices are rising as well. And all this while oil was breaching $112 per barrel. I feel much poorer already writing this without even having to look at the losses on my portfolio!
So what does this translate to, PSE-wise? Well, for one of my favorite stocks (which, ironically, is one of my biggest losers), the bloating inflation is probably among the worst news to come around. This company is Alliance Global Group, Inc. (AGI).
One of the things I liked most about AGI was its strong and direct links to the Philippine consumer market (yes, the same consumer market that I had once been so confident in but that is now threatened by inflation). It’s one of the first thing you notice just looking at its subsidiaries:
MEG - probably the fastest growing real estate company in the Philippines
EDI - claims to have the largest global share of the brandy market – still have to confirm this though
GADC - very profitable and with room for growth without having to gobble up other fast food chains, unlike JFC (no offense, chief!)
Its distribution arm which handles several brands of junk food (Pik-Nik I think is the most well-known brand they carry)
AGI has the Filipino consumer as its number one client; corporate or industrial sources of revenue are minimal. Add to this AGI’s cash hoard (P29B, or 33% of total assets), well-managed debt (half of equity attributable to shareholders), reputable management, a book value of P4.30 and interim (3q07) EPS of P0.34 per share, and you have a company that’s stable and whose stock price is pretty affordable (in my newbie opinion, at least).
I suppose it was a good call for AGI to invest in tourism as a form of diversification from the Philippine consumer market. With today’s inflation and food crises threatening to cut consumption down, I don’t think I’d rather have it any other way – well, except maybe if AGI had bought into PX ;-p
So, what do I see in my crystal ball for AGI? I’m hoping the Filipino consumer remains resilient, and that their tourism ventures do well (though I don’t think we’ll see the effects of that in another two years due to the time it will take to construct the hotels). Growth for 2008 probably won’t be as good as I thought it would be, but I’m still hoping it could at least get into double-digits.
There you have it, AGI and consumption. Next time, more on my thoughts about AGI’s venture into tourism.
In other news: congratulations to COAT and its P408.6M net income for 2007! This translates to a 12.9% return on equity, earnings per share of P0.34 and a P/E of 8.38 (at today’s price of P2.85 per share). Sure wish we could see more of its P500M buyback program kicking in though.
DGTL reported a net income of over P1B pesos from a net loss of over P900M last year. I don’t have this stock, but my good friend compounder888 has been telling me about this for a long time now. I haven’t studied this company yet nor gotten any info about it (I just read about their net income from the newspaper in an article about JGS), but I guess it won’t hurt to have a look. Not that I’ll be buying it, though: I don’t have any money left to invest in stocks, I just filed and paid for my Income Tax Return and my wife is giving birth next month. Even if DGTL does turn out to be a good company (which I doubt – no offense, chief!), it’ll have to wait.
Go, PX, go!! Bid for your shares at P7 and get your buyback program going!
Several blog entries ago, I wrote about the relative resilience of the Filipino consumer and about how, in my humble opinion, it won’t be affected so much by the economic downturn in the United States. I had several reasons for this, namely:
1. OFW’s – probably the most significant source of funding for Filipino consumer spending – are more geographically diversified now. Although the highest concentration of OFW’s is still in the United States (33%, or 2,728,209 of the estimated 8,233,172 individuals as per POEA’s 2006 data), they are now no longer the majority. Moreover, there has been a growing trend of OFW’s seeking greener pastures in countries aside from the U.S. Even though they tend to earn less and work manually in these countries, it still represents a diversification that would buffer us from the U.S. slowdown.
2. Even though the U.S. holds just 33% of total estimated OFW’s, they still account for more than half of total remittances ($6.5B of the total of $12.7B for 2006). At around $2,380 remitted per person (versus the overall average of around $1,540 per person), this indicates that the OFW’s in America are relatively higher paid and, unless most of them are Realtors or employees of Bear Stearns, less vulnerable from the adverse effects of an economic downturn. (Note, LESS vulnerable. Surely, there will be a fallout, but I’d bet the white collar workers would be better protected than the blue collar workers. And since blue collared Filipinos are more commonly found in places like Saudi, UAE, Hong Kong, Italy and Japan – places where the aftershocks of the credit crunch would be less than in the U.S. itself – we could more or less count on less adverse effects to their remittances from those countries.)
3. Aside from geographic diversification, OFW’s are now more diversified in terms of profession. Remember back in the 80’s when then-President Cory lost her temper over a dictionary’s definition of Filipina as “a domestic helper”? Well, today, while the majority of human resource exports by the Philippines is still blue-collar, we now have a higher percentage of white-collar professionals. Not only does this translate to higher incomes and consequently higher remittance volumes, but this diversification also provides a buffer against economic crises.
4. Even though the greenback has lost almost 25% to the peso in the past year or so, there is no denying that the former is around forty times stronger than the latter despite that. To illustrate this, consider the following: a high-end condo unit in Makati sells for an amortization of about twenty to thirty thousand pesos a month. That’s just five to seven hundred dollars in a MONTH! A nurse in the U.S., Middle East or in Europe (and there are plenty of Filipinos in this profession) earns that much money in a couple of DAYS. So does an engineer, chemist or a seaman. For most manual Filipino laborers abroad, it might take longer than just a couple of days to earn that kind of money, but we’re talking about prime Makati real estate here. If a manual laborer were to buy property in, say, Iloilo (where monthly amortizations can be as low as P6,000 for middle-income lots not mortgaged to the HDMF), he would still be very easily capable of doing so. Now, apply that purchasing power to everything else: flat-screen TV’s, cars, McDonald’s burgers. Granted, the dollar today won’t get one as far as it used to, but one with dollars here in the Philippines could still live like a king. What that translates into is a still-relatively strong incentive to send money home, thus giving power to the Filipino consumer.
5. Despite the global slowdown, we’re still sending out (as I’ve said in earlier blogs) more than a million warm bodies a year – more than half our population growth and probably enough to melt the polar ice caps if all OFW’s since the time of Ramos were sent to the North or South poles. (It’s cold, they’ll all have to pee, the warm urine raises water temperatures…CRACK!! Oops! Was that another ice shelf falling off? Imagine the headache that’s going to give Al Gore.) While there’s no denying a U.S. economic slowdown and weaker dollar will whittle down on the remittances sent per OFW, this shotgun approach of just sending out as many people as possible should provide a safeguard and maintain the volume and value of COLLECTIVE remittances by OFW’s. In simpler terms, more OFW’s = more remittances, even if each one sends less money (well, hopefully, at least).
Of course, I could be wrong. Even though I have a minor degree in Economics, my major was cutting class, so my qualifications are second-rate at best. Plus, the U.S. is the biggest economy in the world, so big that if you combine the economies of China and India and multiply that three times, you’d still fall short of Uncle Sam’s GDP. And with consumer spending (the sector most affected by economic downturns) making up for 67% of the U.S. economy, it’s easy to imagine how badly affected the countries that feed the American consumer will be, Philippines included. But it’s for the reasons above that I had believed we could ride out the U.S. subprime meltdown/recession without having a major meltdown of our own, at least as far as domestic consumption is concerned.
Well, that is, I BELIEVED (note: it’s in the past tense), until last week or so when food crises dotted the headlines, and inflation skyrocketed to 6.4% from a very cushy 2.2% last year. The present tense verb that I use more now to describe how I feel about the Philippine consumer market in the light of latest developments is “WORRY”.
For the past months now, I’ve watched how commodity prices in Bloomberg’s ticker tapes were always green, while equities were always red. There was a small voice in my head warning about the possible inflationary pressures (as well as the voices of true-blue economists on TV warning of stagflation) of fundies rushing from equities to commodities, but I was too busy watching the price of gold for my PX to pay heed to all those doomsday voices. And now we can’t have adequate rice supplies until 2011 (at least according to government sources), can no longer have cheap pan de sal because of atrocious wheat and flour prices, cannot eat meat, poultry and fish as easily because of their prices are rising as well. And all this while oil was breaching $112 per barrel. I feel much poorer already writing this without even having to look at the losses on my portfolio!
So what does this translate to, PSE-wise? Well, for one of my favorite stocks (which, ironically, is one of my biggest losers), the bloating inflation is probably among the worst news to come around. This company is Alliance Global Group, Inc. (AGI).
One of the things I liked most about AGI was its strong and direct links to the Philippine consumer market (yes, the same consumer market that I had once been so confident in but that is now threatened by inflation). It’s one of the first thing you notice just looking at its subsidiaries:
MEG - probably the fastest growing real estate company in the Philippines
EDI - claims to have the largest global share of the brandy market – still have to confirm this though
GADC - very profitable and with room for growth without having to gobble up other fast food chains, unlike JFC (no offense, chief!)
Its distribution arm which handles several brands of junk food (Pik-Nik I think is the most well-known brand they carry)
AGI has the Filipino consumer as its number one client; corporate or industrial sources of revenue are minimal. Add to this AGI’s cash hoard (P29B, or 33% of total assets), well-managed debt (half of equity attributable to shareholders), reputable management, a book value of P4.30 and interim (3q07) EPS of P0.34 per share, and you have a company that’s stable and whose stock price is pretty affordable (in my newbie opinion, at least).
I suppose it was a good call for AGI to invest in tourism as a form of diversification from the Philippine consumer market. With today’s inflation and food crises threatening to cut consumption down, I don’t think I’d rather have it any other way – well, except maybe if AGI had bought into PX ;-p
So, what do I see in my crystal ball for AGI? I’m hoping the Filipino consumer remains resilient, and that their tourism ventures do well (though I don’t think we’ll see the effects of that in another two years due to the time it will take to construct the hotels). Growth for 2008 probably won’t be as good as I thought it would be, but I’m still hoping it could at least get into double-digits.
There you have it, AGI and consumption. Next time, more on my thoughts about AGI’s venture into tourism.
In other news: congratulations to COAT and its P408.6M net income for 2007! This translates to a 12.9% return on equity, earnings per share of P0.34 and a P/E of 8.38 (at today’s price of P2.85 per share). Sure wish we could see more of its P500M buyback program kicking in though.
DGTL reported a net income of over P1B pesos from a net loss of over P900M last year. I don’t have this stock, but my good friend compounder888 has been telling me about this for a long time now. I haven’t studied this company yet nor gotten any info about it (I just read about their net income from the newspaper in an article about JGS), but I guess it won’t hurt to have a look. Not that I’ll be buying it, though: I don’t have any money left to invest in stocks, I just filed and paid for my Income Tax Return and my wife is giving birth next month. Even if DGTL does turn out to be a good company (which I doubt – no offense, chief!), it’ll have to wait.
Go, PX, go!! Bid for your shares at P7 and get your buyback program going!
Wednesday, April 9, 2008
Investing in Iloilo
AMDG
In www.finanemanila.net, there’s a forum about Cebu. I have yet to enter that forum, but I assume it’s about investment opportunities in Cebu, or Cebu-based companies listed in the PSE (such as CHI), or generally just about the glories of the new Queen City of the South (yep, new – originally, that title belonged to Iloilo, but that was decades ago).
Well, if you’re planning to invest in Cebu, go right on ahead. Its economy is so bullish right now that the economies of most other cities in the Philippines are like scattering rodeo clowns in comparison. Not to mention its young, highly trained population, its strong infrastructure, stable local government (albeit it’s still not exempt from corruption allegations), etc.
But this blog entry is not about Cebu. No. This blog entry is about the city who once held the title of Queen City of the South (and who lost it for good reason); the city that I grew up in, and the city that I love with a love that isn’t blind (I otherwise won’t be writing this if it were). This is about Iloilo City.
Iloilo is still an economic powerhouse to be reckoned with, don’t get me wrong. We have one of the highest concentrations of highly-skilled OFW’s (nurses, seamen, doctors, engineers, etc.), our real estate sector is booming, trade and commerce are on a high. But, in many ways, we now lag behind Cebu and Davao. We are dirtier and more congested than Bacolod (and Cebu and Davao), and are a whole lot of other negative things that would be too long to write about. While there is a lot of potential here in Iloilo, there is also an endemic problem here that I wish to relate to you by narrating a short story about my brother.
It all happened late one night. In a street made dark by streetlights that don’t work (as is often the case here), a jeep driver stopped right smack in the middle of the road to pick up passengers (as is often the case here) and was hit in the back by motorcycle that was going too fast (yes, still as is often the case here). My brother, who was driving our new 2007 Starex on the opposite lane, was surprised to see the motorcycle suddenly flying out of the other lane behind the jeep and careening towards him. He swerved to the right, almost running into an electrical post that was too near the road (haaayyyy…as is often the case here, still). Despite his efforts though, the motorcycle rammed into him, tearing off part of the fender and the mudguard and bending the car door in half.
The good news is the motorcycle driver survived. He now looks like Juan Manuel Marquez after fighting Manny Pacquiao with his hands tied behind his back, but he’s alive. Even better, my brother and his friends in the Starex were unharmed as well. As for the jeep driver, he fled the scene like it was the epicenter of a SARS outbreak.
But this accident would have been all but avoidable had it not for the most basic things that I and many other decent Ilonggos pay for in our taxes, such as the following:
1. Streetlights: the funny thing about Iloilo is we don’t seem to run out of streetlights that turn on DURING THE DAY. At night, half the city is like Dawn of the Dead: you half expect a zombie to suddenly just materialize out of the depths of the darkness that swathe the sides of our roads.
2. Driver discipline: as if jeeps aren’t an obsolete mode of public transportation enough (name a big, first-world city with jeeps?), jeep drivers stop in the middle of the road to pick up passengers, buy candy or smokes, break a big bill, or just chat with someone on the sidewalk. Well, that’s a common problem everywhere in the Philippines, you might say. But I’ve been to Davao, Cebu and Manila often enough say that, in my opinion, jeep drivers are much worse here in Iloilo. And why wouldn’t they be? Our traffic cops are almost never seen working! Yeah, you see them sitting in the shade, chatting, scratching their balls, sitting in the shade some more. But work? What that? How you spell that?
3. Motorcycles: yes, the two-stroke bane of all “highly urbanized areas” such as Iloilo. Regulation is the key here, but places like Iloilo, Roxas and Kalibo are being overrun by them, and not in the quaint, Mediterranean kind of way. Motorcycles and tricycles are like really noisy, smoky mosquitoes here, all of them driving as fast (or as slowly) as they want, cutting in and out of traffic and carrying whatever load they can (for the Davaoeño who might be reading, the term Skylab might be something he could relate to in this regard, although at the very least Mayor Duterte controls them).
So if you want to invest in Iloilo, by all means do so! Trust me, there’s money to be made here, and I’m not just saying that because I’m a true-blue Ilonggo who loves his city. But before you do, take a closer look because this place is really more of a baranggay that grew really big instead of a city. By that, I mean civic order and the concept of public domain are things that are not a priority here. So if you think the money to be made here is well worth the risk of having a heart attack because of your daily commute to work, then you are most welcome :-)
In www.finanemanila.net, there’s a forum about Cebu. I have yet to enter that forum, but I assume it’s about investment opportunities in Cebu, or Cebu-based companies listed in the PSE (such as CHI), or generally just about the glories of the new Queen City of the South (yep, new – originally, that title belonged to Iloilo, but that was decades ago).
Well, if you’re planning to invest in Cebu, go right on ahead. Its economy is so bullish right now that the economies of most other cities in the Philippines are like scattering rodeo clowns in comparison. Not to mention its young, highly trained population, its strong infrastructure, stable local government (albeit it’s still not exempt from corruption allegations), etc.
But this blog entry is not about Cebu. No. This blog entry is about the city who once held the title of Queen City of the South (and who lost it for good reason); the city that I grew up in, and the city that I love with a love that isn’t blind (I otherwise won’t be writing this if it were). This is about Iloilo City.
Iloilo is still an economic powerhouse to be reckoned with, don’t get me wrong. We have one of the highest concentrations of highly-skilled OFW’s (nurses, seamen, doctors, engineers, etc.), our real estate sector is booming, trade and commerce are on a high. But, in many ways, we now lag behind Cebu and Davao. We are dirtier and more congested than Bacolod (and Cebu and Davao), and are a whole lot of other negative things that would be too long to write about. While there is a lot of potential here in Iloilo, there is also an endemic problem here that I wish to relate to you by narrating a short story about my brother.
It all happened late one night. In a street made dark by streetlights that don’t work (as is often the case here), a jeep driver stopped right smack in the middle of the road to pick up passengers (as is often the case here) and was hit in the back by motorcycle that was going too fast (yes, still as is often the case here). My brother, who was driving our new 2007 Starex on the opposite lane, was surprised to see the motorcycle suddenly flying out of the other lane behind the jeep and careening towards him. He swerved to the right, almost running into an electrical post that was too near the road (haaayyyy…as is often the case here, still). Despite his efforts though, the motorcycle rammed into him, tearing off part of the fender and the mudguard and bending the car door in half.
The good news is the motorcycle driver survived. He now looks like Juan Manuel Marquez after fighting Manny Pacquiao with his hands tied behind his back, but he’s alive. Even better, my brother and his friends in the Starex were unharmed as well. As for the jeep driver, he fled the scene like it was the epicenter of a SARS outbreak.
But this accident would have been all but avoidable had it not for the most basic things that I and many other decent Ilonggos pay for in our taxes, such as the following:
1. Streetlights: the funny thing about Iloilo is we don’t seem to run out of streetlights that turn on DURING THE DAY. At night, half the city is like Dawn of the Dead: you half expect a zombie to suddenly just materialize out of the depths of the darkness that swathe the sides of our roads.
2. Driver discipline: as if jeeps aren’t an obsolete mode of public transportation enough (name a big, first-world city with jeeps?), jeep drivers stop in the middle of the road to pick up passengers, buy candy or smokes, break a big bill, or just chat with someone on the sidewalk. Well, that’s a common problem everywhere in the Philippines, you might say. But I’ve been to Davao, Cebu and Manila often enough say that, in my opinion, jeep drivers are much worse here in Iloilo. And why wouldn’t they be? Our traffic cops are almost never seen working! Yeah, you see them sitting in the shade, chatting, scratching their balls, sitting in the shade some more. But work? What that? How you spell that?
3. Motorcycles: yes, the two-stroke bane of all “highly urbanized areas” such as Iloilo. Regulation is the key here, but places like Iloilo, Roxas and Kalibo are being overrun by them, and not in the quaint, Mediterranean kind of way. Motorcycles and tricycles are like really noisy, smoky mosquitoes here, all of them driving as fast (or as slowly) as they want, cutting in and out of traffic and carrying whatever load they can (for the Davaoeño who might be reading, the term Skylab might be something he could relate to in this regard, although at the very least Mayor Duterte controls them).
So if you want to invest in Iloilo, by all means do so! Trust me, there’s money to be made here, and I’m not just saying that because I’m a true-blue Ilonggo who loves his city. But before you do, take a closer look because this place is really more of a baranggay that grew really big instead of a city. By that, I mean civic order and the concept of public domain are things that are not a priority here. So if you think the money to be made here is well worth the risk of having a heart attack because of your daily commute to work, then you are most welcome :-)
Sunday, March 30, 2008
faux pas
AMDG
While posting comments on the online PSE forum site www.financemanila.net, a terribly embarrassing mistake of mine was brought to my attention. In my previous blog entry here, I wrote like a gushing schoolgirl with a big crush, extolling NRCP and its “one third book value and four times earnings when trading at P2.85 per share”. Little did I know that my failure to double check-my figures would lead me to some awkward posts in financemanila and maybe even the wrong decision to buy NRCP.
You see, to determine the number of outstanding shares of a company, I usually just look at the second page of its SEC Form 17-Q that I download from the PSE website (www.pse.org.ph), where the number of outstanding shares is written. Somehow, with the Form 17-Q of NRCP, it says on the second page it has 741,902,600 common shares but indicates that it has 2,181,954,600 common shares in its balance sheet. Unfortunately, I overlooked this, even when the company’s 9-month period EPS was just P0.22 in the f/s and P0.56 in my Excel spreadsheet (which automatically computes EPS, among others).
So there I was in financemanila, aggressively placing my bet on NRCP as a strong buy at 2.85. Fortunately, the good posters of financemanila were kind enough to point out my mistake: with 2,181,954,600 shares, NRCP is actually just a couple of centavos below book value at P2.85 per share, and a little over ten times this year’s earnings. While it was very embarrassing to make such an elementary error, I also could not help but feel grateful to the people who got out of their way to correct me (many thanks to you, guys).
Going back to NRCP, I’m sure there’s a reason why the second page of their SEC Form 17-Q puts the number of shares at more than one billion less than that in their balance sheet (stock split, stock dividend, typographical error, error split, typographical dividend – I don’t know). I double-checked the Form 17-Q’s of the companies I’ve bought into and the companies in my watchlist (seventeen of them so far), and I have yet to find a difference with the number of shares listed in the second page and in the balance sheet (the good news here is, while I made some wrong computations with NRCP, all my other computations for the other companies seem correct). Well, you live, you learn…sometimes the hard, embarrassing way.
As for NRCP though, I had bought this stock primarily because I thought it was really, really cheap – like a three-for-one-peso banana-cue…on midnight sale…during banana season. With this recent development though, that’s not quite the case any longer. Of course, it still has a monopoly on the reinsurance business here in the Philippines. Moreover, even if it’s not trading at a very attractive “just a third of book value”, as I earlier thought, it is still doing so at just around its exact book value, which isn’t that bad. But then again, even with its monopoly on the reinsurance business, its growth prospects do not seem quite as bright. It has a generous dividend yield (around 7% – at least for now), but it’s this exact same dividend yield that could possibly inhibit growth in the long term.
All in all, NRCP still has its monopoly on the country’s reinsurance going for it. Aside from that, everything else doesn’t seem to look as attractive as it used to. Will do some more research here, but I’ll probably have to let it go at low- to mid- P3’s per share level, if it does get there. Well, not unless it does become a $3B company come 2011, as the company’s management claims it will (too much midnight sale, banana season banana-cue for them, perhaps?). At current exchange rates, that would put its book value at P55 per share. And this time, that’s based on the correct number of shares:-)
Peace out!
While posting comments on the online PSE forum site www.financemanila.net, a terribly embarrassing mistake of mine was brought to my attention. In my previous blog entry here, I wrote like a gushing schoolgirl with a big crush, extolling NRCP and its “one third book value and four times earnings when trading at P2.85 per share”. Little did I know that my failure to double check-my figures would lead me to some awkward posts in financemanila and maybe even the wrong decision to buy NRCP.
You see, to determine the number of outstanding shares of a company, I usually just look at the second page of its SEC Form 17-Q that I download from the PSE website (www.pse.org.ph), where the number of outstanding shares is written. Somehow, with the Form 17-Q of NRCP, it says on the second page it has 741,902,600 common shares but indicates that it has 2,181,954,600 common shares in its balance sheet. Unfortunately, I overlooked this, even when the company’s 9-month period EPS was just P0.22 in the f/s and P0.56 in my Excel spreadsheet (which automatically computes EPS, among others).
So there I was in financemanila, aggressively placing my bet on NRCP as a strong buy at 2.85. Fortunately, the good posters of financemanila were kind enough to point out my mistake: with 2,181,954,600 shares, NRCP is actually just a couple of centavos below book value at P2.85 per share, and a little over ten times this year’s earnings. While it was very embarrassing to make such an elementary error, I also could not help but feel grateful to the people who got out of their way to correct me (many thanks to you, guys).
Going back to NRCP, I’m sure there’s a reason why the second page of their SEC Form 17-Q puts the number of shares at more than one billion less than that in their balance sheet (stock split, stock dividend, typographical error, error split, typographical dividend – I don’t know). I double-checked the Form 17-Q’s of the companies I’ve bought into and the companies in my watchlist (seventeen of them so far), and I have yet to find a difference with the number of shares listed in the second page and in the balance sheet (the good news here is, while I made some wrong computations with NRCP, all my other computations for the other companies seem correct). Well, you live, you learn…sometimes the hard, embarrassing way.
As for NRCP though, I had bought this stock primarily because I thought it was really, really cheap – like a three-for-one-peso banana-cue…on midnight sale…during banana season. With this recent development though, that’s not quite the case any longer. Of course, it still has a monopoly on the reinsurance business here in the Philippines. Moreover, even if it’s not trading at a very attractive “just a third of book value”, as I earlier thought, it is still doing so at just around its exact book value, which isn’t that bad. But then again, even with its monopoly on the reinsurance business, its growth prospects do not seem quite as bright. It has a generous dividend yield (around 7% – at least for now), but it’s this exact same dividend yield that could possibly inhibit growth in the long term.
All in all, NRCP still has its monopoly on the country’s reinsurance going for it. Aside from that, everything else doesn’t seem to look as attractive as it used to. Will do some more research here, but I’ll probably have to let it go at low- to mid- P3’s per share level, if it does get there. Well, not unless it does become a $3B company come 2011, as the company’s management claims it will (too much midnight sale, banana season banana-cue for them, perhaps?). At current exchange rates, that would put its book value at P55 per share. And this time, that’s based on the correct number of shares:-)
Peace out!
Thursday, March 27, 2008
Silver lining
AMDG
Congratulations to CHIB and to NRCP! The last time I checked market prices was several days ago (I’ve been rather busy lately). Since then, CHIB hiked up from P600 to P620, while NRCP shot from P2.40 to P2.85.
CHIB recently got a ratings upgrade from “Stable” to “Positive”, but I can’t help but feel disappointed with its 2007 net income. CHIB is a very, very solid company, and this is one stock the I bought for the really long haul. Now, though, I’m tempted to move my funds therein to some other company with stronger growth prospects, like COAT, AP or I. Or maybe even AGI.
Will write more after weighing the pros and cons about that issue.
Congratulations also to NRCP for more than doubling its 2007 net income to P609M from P275M in 2006. The increase came about from successful underwriting investments and well-managed operating expenses. The “successful underwriting investments and well-managed expenses” bit is pretty general, but I still don’t have a copy of the full year 2007 f/s. With nothing to pore over, I’ll just have to content myself with the broad overview that I got from the newspaper.
The P609M net income translates to a P0.37 earnings per share, a little more than half of which (P0.20) will be given out as cash dividends for stockholders on record on April 10, 2008. I can’t say I’m not happy I’ll be getting a rather sizable check again, but I’m also concerned about NRCP giving out half of earnings as dividends. Of course, capex isn’t much of an issue for a reinsurance company (please correct me if I’m mistaken about this). However, giving out such a big amount seems to contradict the company’s goal of being a THREE BILLION DOLLAR-company in just three years. As if this goal isn’t ambitious enough WITHOUT giving dividends considering the company’s total assets now is just P10B (note, that’s ten billion PESOS - $250M under current exchange rates).
Lofty ambitions aside, NRCP is still undeniably a good buy. At current prices of P2.85 per share, that’s just a third of book value and just under four times earnings. Had anybody bought it a few days ago at P2.40 (as I would have if I had extra cash), it would have been an even better bargain. Although, on the down side, ROE’s just a meager 6.45% (as of annualized 3q07 earnings, which is just shy of the actual, newly-released 2007 figure), and growth prospects don’t seem to look as bright (unless they really do manage to become a $3B company in just three years) as companies the likes of AP, COAT, EDC or other mining companies that, right now, would classify as speculative investments.
Does it look like I’m writing one run-on sentence after another? Well, can’t help it.
I guess what I’m trying to say is that overall, NRCP seems to be proving itself as a good investment (especially more so if they become a $3B company in just three years…yes, I’m saying it over and over again because I’m rooting for it!). For this, I have to thank my good friend compounder888 for introducing this stock to me. It wasn’t until he told me about NRCP that I did research on it and saw its potential. So, many thanks Chief, even though I have yet to break even with this stock (I’m assuming the same for you too). Best of luck to us both. I’d also like to point out that I’ve already taken two advices you’ve given me (SMDC and NRCP). About time you bought AGI, pre, or COAT.
And to top the morning off, I just got another bit of really good news from my other good friend, spyfrat: PX is initiating a buyback program that involves 10%!!! YAHOO!!! Still no hard details though aside from the percentage that’s going to be bought back, but this is definitely good icing to the cake.
Congratulations to CHIB and to NRCP! The last time I checked market prices was several days ago (I’ve been rather busy lately). Since then, CHIB hiked up from P600 to P620, while NRCP shot from P2.40 to P2.85.
CHIB recently got a ratings upgrade from “Stable” to “Positive”, but I can’t help but feel disappointed with its 2007 net income. CHIB is a very, very solid company, and this is one stock the I bought for the really long haul. Now, though, I’m tempted to move my funds therein to some other company with stronger growth prospects, like COAT, AP or I. Or maybe even AGI.
Will write more after weighing the pros and cons about that issue.
Congratulations also to NRCP for more than doubling its 2007 net income to P609M from P275M in 2006. The increase came about from successful underwriting investments and well-managed operating expenses. The “successful underwriting investments and well-managed expenses” bit is pretty general, but I still don’t have a copy of the full year 2007 f/s. With nothing to pore over, I’ll just have to content myself with the broad overview that I got from the newspaper.
The P609M net income translates to a P0.37 earnings per share, a little more than half of which (P0.20) will be given out as cash dividends for stockholders on record on April 10, 2008. I can’t say I’m not happy I’ll be getting a rather sizable check again, but I’m also concerned about NRCP giving out half of earnings as dividends. Of course, capex isn’t much of an issue for a reinsurance company (please correct me if I’m mistaken about this). However, giving out such a big amount seems to contradict the company’s goal of being a THREE BILLION DOLLAR-company in just three years. As if this goal isn’t ambitious enough WITHOUT giving dividends considering the company’s total assets now is just P10B (note, that’s ten billion PESOS - $250M under current exchange rates).
Lofty ambitions aside, NRCP is still undeniably a good buy. At current prices of P2.85 per share, that’s just a third of book value and just under four times earnings. Had anybody bought it a few days ago at P2.40 (as I would have if I had extra cash), it would have been an even better bargain. Although, on the down side, ROE’s just a meager 6.45% (as of annualized 3q07 earnings, which is just shy of the actual, newly-released 2007 figure), and growth prospects don’t seem to look as bright (unless they really do manage to become a $3B company in just three years) as companies the likes of AP, COAT, EDC or other mining companies that, right now, would classify as speculative investments.
Does it look like I’m writing one run-on sentence after another? Well, can’t help it.
I guess what I’m trying to say is that overall, NRCP seems to be proving itself as a good investment (especially more so if they become a $3B company in just three years…yes, I’m saying it over and over again because I’m rooting for it!). For this, I have to thank my good friend compounder888 for introducing this stock to me. It wasn’t until he told me about NRCP that I did research on it and saw its potential. So, many thanks Chief, even though I have yet to break even with this stock (I’m assuming the same for you too). Best of luck to us both. I’d also like to point out that I’ve already taken two advices you’ve given me (SMDC and NRCP). About time you bought AGI, pre, or COAT.
And to top the morning off, I just got another bit of really good news from my other good friend, spyfrat: PX is initiating a buyback program that involves 10%!!! YAHOO!!! Still no hard details though aside from the percentage that’s going to be bought back, but this is definitely good icing to the cake.
Monday, March 24, 2008
daydream
AMDG
If you’re just daydreaming, so you might as well dream big.
PX right now makes up for 20% of my portfolio – relatively sizable. And since my average purchase price for PX is just P4.03 per share…Well, it’s seen better days but I suppose you could say it’s still pretty profitable (PX now is now doing P6.30 after the following: nose-diving from a recent 52-week high of P11.75, its 30% stock dividend several weeks ago, its special cash dividend late last year, and a whole bunch of other cash dividends early to mid last year).
That’s the good news. Well, good enough for the optimist in me, at least. The bad news is that every other stock I have is doing so dismally that all the gains I got from PX have been totally wiped out. Even the extraordinary gains of PX could not do anything to mitigate the losses from the other 80% of my portfolio and – to since June of 2007 – I’m 15% down overall.
One of my biggest losers comes from the biggest component in my portfolio: AGI. Boss Andrew Tan’s holding company accounts for 24% of my portfolio and contributes a hefty and bitter 32.51% loss thereto. I initially bought this stock at P6.10 (just a tad bit above book value). I bought again at P4.20 when the subprime fiasco blew up to lower my average. Now, AGI is doing 3.50 and seems to be showing no signs of slowing its downward slide.
“SELL, YOU SORRY EXCUSE OF A SON OF A GUN!” many might say. “It ain’t yella to save your own skin boy, and you ain’t gonna be any less of a man! SELL!!!” Indeed, many a technical trader might have sold out long ago. Me, I just pull up the crotch of my pants, spit to the side, and say in my lowest, most fearless, macho, cowboy-like voice: “Ain’t my style.” Of course, I’d be standing with my legs apart when I do this – yeah, for the macho stance, but also to hide how my knees would be shaking so badly at the prospect of AGI falling to P2.00 per share.
But it’s not all bad for AGI. First up, it’s a really cheap way of buying into MEG, probably the fastest growing real estate company in the Philippines. Secondly, the way Andrew Tan and co have managed their businesses, I have strong faith that AGI will run up and challenge the big boys AC and SMIC (but probably not anytime soon). At almost half its book value just about seven times its earnings (annualized from 3q07), AGI at P3.50 is a steal, with its P29B cash hoard, P19.4B in revenues, P3.4B net income for 3q07, well-managed debt (half of equity) and – its strong suit, according to some analysts – very strong ties to the resilient (I hope!!!) Filipino consumer market via MEG, GADC and EDI, etc.
It does have its weaknesses, I concede. For one, I can’t find any solid numbers for EDI, which claims to have the best selling brandy worldwide (Emperador Brandy). Until I see some audited financial statements or hear from a highly reputable source that yes, Emperador is the best-selling brandy worldwide, I don’t think I’ll be 100% as far as this is concerned (especially since I’ve never seen anyone actually drinking the stuff).
Also, I mentioned how I hope the Filipino consumer market is more resilient than expected. Everyone now is expecting consumption to go down, especially in a country whose number one trading partner and whose number one source of OFW remittances is the United States. Not to mention the strengthening peso and the weakening dollar. But I’m willing to go out on a limb here and say no, the Filipino consumer will keep on buying. After all, we’re exporting almost a million warm bodies every year (almost enough to melt the ice caps with their urine if we sent them all to the North and South Poles), and they keep sending back more and more money. Exports-wise, alternatives are more available now than ever. Well, maybe the alternatives won’t be enough to compensate for a U.S. slowdown, but at least we don’t end up with nothing.
Another weakness: AGI’s meager ROE. At just 7.88%, it may be at par with its peers in the Holdings sector, but it’s not as high as I’d like it to be (like I said, I’m willing to compromise, which was what led me to buy this stock).
But I’m getting lost here. After all, I’m writing to talk about a daydream. And the daydream is this: with AGI’s aforementioned P29B cash hoard, it just about able to buy any one of half of the companies listed in the PSE, plus their kitchen sinks. In my portfolio alone, COAT (market cap: P4.1B), NRCP (market cap: P1.7B) and SMDC (market cap: P9.3B) fit this bill. Heck, AGI could even buy all of these three COMBINED!
Hey, there’s a thought…
But what I originally had in mind was this: with it’s P29B cash hoard, AGI could very easily buy a majority controlling stake in one very good company (imo, at least) – Philex Mining.
At just P6.20 per share (as of yesterday’s close) PX only has a P23.9B market cap. Half of this would be easy pickings for AGI. IT WON’T EVEN HAVE TO TAKE OUT A LOAN! It won’t get PX’s kitchen sink though…
Anyway, think about it: with it’s P5B net income for 2007, AGI could break even with PX in just around five years. PX also has some very strategic “jackpot” investments in oil exploration and other mines. PX is also a very good way to diversify out of the “volatile” consumer market of the Philippines (although, volatility-wise, investing into a mining company may be a from-the-frying-pan-into-the-fire move for AGI – but it’s diversification nonetheless). Most importantly of all, AGI buying into PX would put some spice into the two biggest boys in my portfolio.
Of course, you could very well say PX has its weaknesses too (who or what doesn’t). Padcal’s getting old (though it did get a new lease on life last year when its mine life was extended up to 2014), you never know when gold and copper prices would slide and if that slide would be as spectacular as its rise, the Boyongan project doesn’t seem to be moving and PX doesn’t seem to have any other ace up its sleeve as far as other mines is concerned, the stock price is still too expensive, there’s a rumor about management screwing up somewhere, and PX’s oil exploration investments – huh?
Refuting all those would probably take too long and would be best suited for another day.
As for the volatility in the mining industry, I could say that the fundamentals behind high metal prices (weak American economy, sagging dollar, surging demand from emerging economies, high oil prices) are still pretty much in play, despite gold’s recent fall from above the $1,000 mark to the low $900’s. But if you ask me whether or not metal prices will still be where they are now in five years, or whether they will be higher or lower by that time, I’m afraid I cannot give an answer. No one can, I believe, and that is probably the greatest weakness of PX as a major, long-term investment for a company like AGI.
The silver lining to that issue though is this: in the medium term, even if gold falls to the mid-$800 levels, that price is still much higher than the average realized gold price for the first three quarters of 07, which was $663 (the same thing could be said for copper, whose current price is around $3.90 per pound and whose average realized price for the same period was $3.58). Given that, I wouldn’t be surprised if 2008 ends up as another banner year for PX. 2009? 2010? 2011? 2015? 2020? Can’t say. But as far as 2008 is concerned, I’m willing to bet 20% of my portfolio that it’ll be good.
All in all, in my opinion, I do believe having PX under it’s wing would not be all that bad for AGI at all. It would be a good thing, I believe. And not just for AGI, but for my portfolio as well.
Hey, if you’re just daydreaming, you might as well dream big :-)
Belated Happy Easter to all! :-)
If you’re just daydreaming, so you might as well dream big.
PX right now makes up for 20% of my portfolio – relatively sizable. And since my average purchase price for PX is just P4.03 per share…Well, it’s seen better days but I suppose you could say it’s still pretty profitable (PX now is now doing P6.30 after the following: nose-diving from a recent 52-week high of P11.75, its 30% stock dividend several weeks ago, its special cash dividend late last year, and a whole bunch of other cash dividends early to mid last year).
That’s the good news. Well, good enough for the optimist in me, at least. The bad news is that every other stock I have is doing so dismally that all the gains I got from PX have been totally wiped out. Even the extraordinary gains of PX could not do anything to mitigate the losses from the other 80% of my portfolio and – to since June of 2007 – I’m 15% down overall.
One of my biggest losers comes from the biggest component in my portfolio: AGI. Boss Andrew Tan’s holding company accounts for 24% of my portfolio and contributes a hefty and bitter 32.51% loss thereto. I initially bought this stock at P6.10 (just a tad bit above book value). I bought again at P4.20 when the subprime fiasco blew up to lower my average. Now, AGI is doing 3.50 and seems to be showing no signs of slowing its downward slide.
“SELL, YOU SORRY EXCUSE OF A SON OF A GUN!” many might say. “It ain’t yella to save your own skin boy, and you ain’t gonna be any less of a man! SELL!!!” Indeed, many a technical trader might have sold out long ago. Me, I just pull up the crotch of my pants, spit to the side, and say in my lowest, most fearless, macho, cowboy-like voice: “Ain’t my style.” Of course, I’d be standing with my legs apart when I do this – yeah, for the macho stance, but also to hide how my knees would be shaking so badly at the prospect of AGI falling to P2.00 per share.
But it’s not all bad for AGI. First up, it’s a really cheap way of buying into MEG, probably the fastest growing real estate company in the Philippines. Secondly, the way Andrew Tan and co have managed their businesses, I have strong faith that AGI will run up and challenge the big boys AC and SMIC (but probably not anytime soon). At almost half its book value just about seven times its earnings (annualized from 3q07), AGI at P3.50 is a steal, with its P29B cash hoard, P19.4B in revenues, P3.4B net income for 3q07, well-managed debt (half of equity) and – its strong suit, according to some analysts – very strong ties to the resilient (I hope!!!) Filipino consumer market via MEG, GADC and EDI, etc.
It does have its weaknesses, I concede. For one, I can’t find any solid numbers for EDI, which claims to have the best selling brandy worldwide (Emperador Brandy). Until I see some audited financial statements or hear from a highly reputable source that yes, Emperador is the best-selling brandy worldwide, I don’t think I’ll be 100% as far as this is concerned (especially since I’ve never seen anyone actually drinking the stuff).
Also, I mentioned how I hope the Filipino consumer market is more resilient than expected. Everyone now is expecting consumption to go down, especially in a country whose number one trading partner and whose number one source of OFW remittances is the United States. Not to mention the strengthening peso and the weakening dollar. But I’m willing to go out on a limb here and say no, the Filipino consumer will keep on buying. After all, we’re exporting almost a million warm bodies every year (almost enough to melt the ice caps with their urine if we sent them all to the North and South Poles), and they keep sending back more and more money. Exports-wise, alternatives are more available now than ever. Well, maybe the alternatives won’t be enough to compensate for a U.S. slowdown, but at least we don’t end up with nothing.
Another weakness: AGI’s meager ROE. At just 7.88%, it may be at par with its peers in the Holdings sector, but it’s not as high as I’d like it to be (like I said, I’m willing to compromise, which was what led me to buy this stock).
But I’m getting lost here. After all, I’m writing to talk about a daydream. And the daydream is this: with AGI’s aforementioned P29B cash hoard, it just about able to buy any one of half of the companies listed in the PSE, plus their kitchen sinks. In my portfolio alone, COAT (market cap: P4.1B), NRCP (market cap: P1.7B) and SMDC (market cap: P9.3B) fit this bill. Heck, AGI could even buy all of these three COMBINED!
Hey, there’s a thought…
But what I originally had in mind was this: with it’s P29B cash hoard, AGI could very easily buy a majority controlling stake in one very good company (imo, at least) – Philex Mining.
At just P6.20 per share (as of yesterday’s close) PX only has a P23.9B market cap. Half of this would be easy pickings for AGI. IT WON’T EVEN HAVE TO TAKE OUT A LOAN! It won’t get PX’s kitchen sink though…
Anyway, think about it: with it’s P5B net income for 2007, AGI could break even with PX in just around five years. PX also has some very strategic “jackpot” investments in oil exploration and other mines. PX is also a very good way to diversify out of the “volatile” consumer market of the Philippines (although, volatility-wise, investing into a mining company may be a from-the-frying-pan-into-the-fire move for AGI – but it’s diversification nonetheless). Most importantly of all, AGI buying into PX would put some spice into the two biggest boys in my portfolio.
Of course, you could very well say PX has its weaknesses too (who or what doesn’t). Padcal’s getting old (though it did get a new lease on life last year when its mine life was extended up to 2014), you never know when gold and copper prices would slide and if that slide would be as spectacular as its rise, the Boyongan project doesn’t seem to be moving and PX doesn’t seem to have any other ace up its sleeve as far as other mines is concerned, the stock price is still too expensive, there’s a rumor about management screwing up somewhere, and PX’s oil exploration investments – huh?
Refuting all those would probably take too long and would be best suited for another day.
As for the volatility in the mining industry, I could say that the fundamentals behind high metal prices (weak American economy, sagging dollar, surging demand from emerging economies, high oil prices) are still pretty much in play, despite gold’s recent fall from above the $1,000 mark to the low $900’s. But if you ask me whether or not metal prices will still be where they are now in five years, or whether they will be higher or lower by that time, I’m afraid I cannot give an answer. No one can, I believe, and that is probably the greatest weakness of PX as a major, long-term investment for a company like AGI.
The silver lining to that issue though is this: in the medium term, even if gold falls to the mid-$800 levels, that price is still much higher than the average realized gold price for the first three quarters of 07, which was $663 (the same thing could be said for copper, whose current price is around $3.90 per pound and whose average realized price for the same period was $3.58). Given that, I wouldn’t be surprised if 2008 ends up as another banner year for PX. 2009? 2010? 2011? 2015? 2020? Can’t say. But as far as 2008 is concerned, I’m willing to bet 20% of my portfolio that it’ll be good.
All in all, in my opinion, I do believe having PX under it’s wing would not be all that bad for AGI at all. It would be a good thing, I believe. And not just for AGI, but for my portfolio as well.
Hey, if you’re just daydreaming, you might as well dream big :-)
Belated Happy Easter to all! :-)
Wednesday, March 19, 2008
Introduction
AMDG
About this blog:
Hi! Warmest greetings to anyone who may have stumbled into this blog and decided against his/her better judgment to read on. Welcome to rpstockblogger.com, my personal logbook about the Philippine Stock Market – a montage of thoughts, opinions, statistics, rumors, personal conspiracy theories, facts and what-else-not that I believe is worth writing down.
Seeing as this blog might go in all directions all at once, let me just set a few parameters and disclaimers:
1. All you see and read here are personal – i.e., they are not to be taken as professional advice or anything like that. I am as far from being a professional stock investor as from being a professional anything. So anything you see here, take it with a grain of salt.
2. My primary objective for doing this is to have a venue for remembering whatever thoughts, strategies, eureka moments and sudden, gut-wrenching realizations of a wrong investment that I may have made that pops into my head. It only happens to often with me: I’m sterilizing my daughter’s milk bottles or changing her diaper when I realize I should’ve looked into this or invested in that, only to forget it the next day when I go to the office. Though I have a spreadsheet for qualitative and quantitative data and opinions, I find that writing my thoughts in prose gives it more structure.
3. My secondary objective is to share – and, in the same process, to learn. There are many other stock market investors out there who may be looking for insights and who may want to read my cockamamie opinions. Also, there may be a lot of stock market enthusiasts out there who may want to CORRECT my cockamamie opinions. Both reasons, I believe, will make this endeavor worthwhile.
About the latter reason, though – the part where others may want to correct me – this is something I would highly appreciate. All stock investors are in it to make money, so feel free to be as frank as possible when commenting on any of my thoughts or opinions. I’d rather be corrected than realize too late that I’m stuck with a bad stock. Additionally, for those times when I believe I am correct, a more lengthy exchange of ideas would be a good thing to have J
4. The scope of my blog is largely limited to the Philippine Stock Market, i.e., the Philippine Stock Exchange. Expect to find also tidbits about the Philippine economy, specific Philippine industries, rumors from business clubs, etc. Of course, we can’t exactly pull ourselves away from the web of the global economy, so cause-and-effect relations from abroad will play a huge role here too.
About me and my trading style:
I consider myself a fundamental investor. I buy a stock based on financial soundness, operational efficiency, growth prospects and price attractiveness. To judge according to these criteria, I look mainly at news reports, PSE disclosures, annual reports and financial statements. Of course, I also get in touch with my broker and other friends who also invest for rumors, news, etc. From there, I come up with a quantitative and qualitative database per company that I pore over when deciding whether or not to buy.
As a fundamental investor, I usually hold stocks until I find them too expensive (that is, when the price becomes much greater than the book value, the price per share returns and the qualitative premium over that I place over these two, as dictated by my comfort level and appetite for risk). That usually takes anywhere between several months to several years, depending on the stock and the condition of the market. The shortest stock I ever held that I can remember (i.e., that I have a record of) is EIB, which I bought at P0.49 on March of 2007 and sold at P0.54 of the same year. The longest stock which I’ve held (and still holding onto to date) is PX, which I started buying at August of 2006 at an average price of P4.03 a share.
As for the buying, I prefer stocks with healthy balance sheets, good management strong growth potential and low per and p/bv ratios. Too much to ask under normal circumstances, yes, but that’s just the ideal. I’m pretty open to compromise as far as these criteria are concerned, otherwise I would have never been able to buy a single stock.
I have been investing in the stock market for over five years now. For the first two or three years, I just bought whatever stock I felt like buying; I was the coin-toss investor. After and 8%-15% gain, I’d usually sell, toss the coin again, buy again, and repeat the process. Luckily enough, I made 50% in my first year of investing in PSE!
The second year, I lost around 15% in the BDO IPO. The IPO price was P18.00, and it went down to the P15-P16 level in a few months. I cut my losses (a mistake, considering BDO is trading now at around 80 bucks a pop – but that’s why I’d like to learn and be constructively criticized) and went back to my darling at the time (and incidentally, a bank that was gobbled by BDO just last year): EPCI. I gained back what I lost and got out barely breaking even.
I stopped trading for a year or so after that, stung by the fact that I jeopardized my life savings (oh how youth is wasted on the young!). Then a good friend of mine (let’s call him compounder888) asked me about the stock market and how to invest therein. I gladly took him to my broker and introduced him to another friend (let’s call this other guy spyfrat – yes, he’s the same spyfrat whose name is among the most respected technical analysts in the PSE forums). From there, compounder888’s portfolio really took off. I was particularly challenged when he tripled his money in URC. His success made me take a long, hard look at how I was investing; I mean, whatever he was doing, I’m sure it was better than tossing coins.
So it was at this point that I decided to have a little discipline in how I invested. I still made some mistakes along the way (SMCB, PCOR). By and large though, I began to find my rhythm, and things started to fall into place. Overall, in the eighteen months spanning November 2005 to May 2007, my portfolio jumped 104.55% - can’t say I wasn’t happy with that.
But despite the satisfactory returns I got that year, there are still things I now realize in hindsight. There were stocks where I got lucky, stocks which I bought for the wrong reasons. There were the recommendations that I took at face value without any research on my part, and there were tons of research on my part that I did not act on because of the recommendations I took just at face value (JGS at P3.50++, ASIA at P5.00++ and RCB at P8.00++).
I suppose you could also say that I, along with many others, just got lucky that year because stocks were good overall anyway. You could say that I could’ve stayed on with my coin-toss method of stock-picking and still make money, given how hot the market was. Well, maybe. But to this I would point out one barometer of gauging how good your progress is in the stock market, one that my friend compounder888 uses: whether or not you beat the index. I don’t have solid figures for the PSEI during that period, but I’m confident I beat it. But, much more importantly, I would point out that it was during this time that I developed my investment style, a style that (let’s hope) is much more successful and sensible that tossing coins.
It was this investment style that helped save me from the initial onslaught of the global meltdown brought about by the American credit crisis. By May of 2007, my portfolio was too bloated for comfort. I had stocks trading at beyond six times its book value (PAX) or thirty times its earnings (MEG). It was at this point when I decided to sell everything I had except PX, whose extremely bright prospects allowed me to look past the fact that its price was hovering just below 2:1 p/bv.
True enough, all the stocks that I let go took a beating (particularly PAX, which lost 90% of its value). True enough too, PX continued its stellar rise, hitting a high of P11.75 before being pulled back down to earth (I’m still confident this guy has what it takes to reach the low teens).
But I wasn’t totally spared: I bought into AGI just weeks before the meltdown. I also went back into the market too early (now would’ve been better) and downed a sizable amount into SMDC (enough to make it 17% of my portfolio) – a company that has 60% of its assets in equities and a quarter of whose revenues comes from mark-to-market gains. Needless to say, with the downturn, SMDC was slaughtered.
So now, here I am, coping with an 11% loss since June of 2007 and with no more money to buy more shares at lower prices. The journey’s just beginning.
(On a more personal note, I’d like to express my gratitude to my friend, compounder888, for forcing me to pull my head out of my ass and discover there’s more to stocks than posting a list of blue chips on the wall, throwing a dart at it and buying whatever I hit. Although this guy and I barely agree on anything stocks-, market- and economy-wise even until now, I don’t think I’d be writing this blog if he didn’t challenge me to be better at investing. As a matter of fact, his own blog, www.chiefstocks.blogspot.com, is one of the reasons why I thought of making one of my own. Copy-cat, yeah, I know, but who introduced who to stocks anyway?! Hehe, just kidding, Chief. “You can’t argue with success,” as compounder888 would say about Warren Buffett, but you sure can try to copy it. Anyway, this guy’s had more than his fair share of good calls as far as stocks is concerned, so check his blog out too while you’re at it.)
So now you know what the blog is about, and you have a background idea about the person writing it. Feel free to read on, comment, ask, object or refute. For any of that, don’t hesitate to e-mail me at rpstockblogger@gmail.com.
Enjoy!
About this blog:
Hi! Warmest greetings to anyone who may have stumbled into this blog and decided against his/her better judgment to read on. Welcome to rpstockblogger.com, my personal logbook about the Philippine Stock Market – a montage of thoughts, opinions, statistics, rumors, personal conspiracy theories, facts and what-else-not that I believe is worth writing down.
Seeing as this blog might go in all directions all at once, let me just set a few parameters and disclaimers:
1. All you see and read here are personal – i.e., they are not to be taken as professional advice or anything like that. I am as far from being a professional stock investor as from being a professional anything. So anything you see here, take it with a grain of salt.
2. My primary objective for doing this is to have a venue for remembering whatever thoughts, strategies, eureka moments and sudden, gut-wrenching realizations of a wrong investment that I may have made that pops into my head. It only happens to often with me: I’m sterilizing my daughter’s milk bottles or changing her diaper when I realize I should’ve looked into this or invested in that, only to forget it the next day when I go to the office. Though I have a spreadsheet for qualitative and quantitative data and opinions, I find that writing my thoughts in prose gives it more structure.
3. My secondary objective is to share – and, in the same process, to learn. There are many other stock market investors out there who may be looking for insights and who may want to read my cockamamie opinions. Also, there may be a lot of stock market enthusiasts out there who may want to CORRECT my cockamamie opinions. Both reasons, I believe, will make this endeavor worthwhile.
About the latter reason, though – the part where others may want to correct me – this is something I would highly appreciate. All stock investors are in it to make money, so feel free to be as frank as possible when commenting on any of my thoughts or opinions. I’d rather be corrected than realize too late that I’m stuck with a bad stock. Additionally, for those times when I believe I am correct, a more lengthy exchange of ideas would be a good thing to have J
4. The scope of my blog is largely limited to the Philippine Stock Market, i.e., the Philippine Stock Exchange. Expect to find also tidbits about the Philippine economy, specific Philippine industries, rumors from business clubs, etc. Of course, we can’t exactly pull ourselves away from the web of the global economy, so cause-and-effect relations from abroad will play a huge role here too.
About me and my trading style:
I consider myself a fundamental investor. I buy a stock based on financial soundness, operational efficiency, growth prospects and price attractiveness. To judge according to these criteria, I look mainly at news reports, PSE disclosures, annual reports and financial statements. Of course, I also get in touch with my broker and other friends who also invest for rumors, news, etc. From there, I come up with a quantitative and qualitative database per company that I pore over when deciding whether or not to buy.
As a fundamental investor, I usually hold stocks until I find them too expensive (that is, when the price becomes much greater than the book value, the price per share returns and the qualitative premium over that I place over these two, as dictated by my comfort level and appetite for risk). That usually takes anywhere between several months to several years, depending on the stock and the condition of the market. The shortest stock I ever held that I can remember (i.e., that I have a record of) is EIB, which I bought at P0.49 on March of 2007 and sold at P0.54 of the same year. The longest stock which I’ve held (and still holding onto to date) is PX, which I started buying at August of 2006 at an average price of P4.03 a share.
As for the buying, I prefer stocks with healthy balance sheets, good management strong growth potential and low per and p/bv ratios. Too much to ask under normal circumstances, yes, but that’s just the ideal. I’m pretty open to compromise as far as these criteria are concerned, otherwise I would have never been able to buy a single stock.
I have been investing in the stock market for over five years now. For the first two or three years, I just bought whatever stock I felt like buying; I was the coin-toss investor. After and 8%-15% gain, I’d usually sell, toss the coin again, buy again, and repeat the process. Luckily enough, I made 50% in my first year of investing in PSE!
The second year, I lost around 15% in the BDO IPO. The IPO price was P18.00, and it went down to the P15-P16 level in a few months. I cut my losses (a mistake, considering BDO is trading now at around 80 bucks a pop – but that’s why I’d like to learn and be constructively criticized) and went back to my darling at the time (and incidentally, a bank that was gobbled by BDO just last year): EPCI. I gained back what I lost and got out barely breaking even.
I stopped trading for a year or so after that, stung by the fact that I jeopardized my life savings (oh how youth is wasted on the young!). Then a good friend of mine (let’s call him compounder888) asked me about the stock market and how to invest therein. I gladly took him to my broker and introduced him to another friend (let’s call this other guy spyfrat – yes, he’s the same spyfrat whose name is among the most respected technical analysts in the PSE forums). From there, compounder888’s portfolio really took off. I was particularly challenged when he tripled his money in URC. His success made me take a long, hard look at how I was investing; I mean, whatever he was doing, I’m sure it was better than tossing coins.
So it was at this point that I decided to have a little discipline in how I invested. I still made some mistakes along the way (SMCB, PCOR). By and large though, I began to find my rhythm, and things started to fall into place. Overall, in the eighteen months spanning November 2005 to May 2007, my portfolio jumped 104.55% - can’t say I wasn’t happy with that.
But despite the satisfactory returns I got that year, there are still things I now realize in hindsight. There were stocks where I got lucky, stocks which I bought for the wrong reasons. There were the recommendations that I took at face value without any research on my part, and there were tons of research on my part that I did not act on because of the recommendations I took just at face value (JGS at P3.50++, ASIA at P5.00++ and RCB at P8.00++).
I suppose you could also say that I, along with many others, just got lucky that year because stocks were good overall anyway. You could say that I could’ve stayed on with my coin-toss method of stock-picking and still make money, given how hot the market was. Well, maybe. But to this I would point out one barometer of gauging how good your progress is in the stock market, one that my friend compounder888 uses: whether or not you beat the index. I don’t have solid figures for the PSEI during that period, but I’m confident I beat it. But, much more importantly, I would point out that it was during this time that I developed my investment style, a style that (let’s hope) is much more successful and sensible that tossing coins.
It was this investment style that helped save me from the initial onslaught of the global meltdown brought about by the American credit crisis. By May of 2007, my portfolio was too bloated for comfort. I had stocks trading at beyond six times its book value (PAX) or thirty times its earnings (MEG). It was at this point when I decided to sell everything I had except PX, whose extremely bright prospects allowed me to look past the fact that its price was hovering just below 2:1 p/bv.
True enough, all the stocks that I let go took a beating (particularly PAX, which lost 90% of its value). True enough too, PX continued its stellar rise, hitting a high of P11.75 before being pulled back down to earth (I’m still confident this guy has what it takes to reach the low teens).
But I wasn’t totally spared: I bought into AGI just weeks before the meltdown. I also went back into the market too early (now would’ve been better) and downed a sizable amount into SMDC (enough to make it 17% of my portfolio) – a company that has 60% of its assets in equities and a quarter of whose revenues comes from mark-to-market gains. Needless to say, with the downturn, SMDC was slaughtered.
So now, here I am, coping with an 11% loss since June of 2007 and with no more money to buy more shares at lower prices. The journey’s just beginning.
(On a more personal note, I’d like to express my gratitude to my friend, compounder888, for forcing me to pull my head out of my ass and discover there’s more to stocks than posting a list of blue chips on the wall, throwing a dart at it and buying whatever I hit. Although this guy and I barely agree on anything stocks-, market- and economy-wise even until now, I don’t think I’d be writing this blog if he didn’t challenge me to be better at investing. As a matter of fact, his own blog, www.chiefstocks.blogspot.com, is one of the reasons why I thought of making one of my own. Copy-cat, yeah, I know, but who introduced who to stocks anyway?! Hehe, just kidding, Chief. “You can’t argue with success,” as compounder888 would say about Warren Buffett, but you sure can try to copy it. Anyway, this guy’s had more than his fair share of good calls as far as stocks is concerned, so check his blog out too while you’re at it.)
So now you know what the blog is about, and you have a background idea about the person writing it. Feel free to read on, comment, ask, object or refute. For any of that, don’t hesitate to e-mail me at rpstockblogger@gmail.com.
Enjoy!
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