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! :-)