Last week we talked about how 2012 was a banner year for the PSE, we also featured one possible play in PRC. This week we will be talking about my personal industry picks – which industries I think would outperform in 2013.
Philippines Stock Market Year in Review Part 2 and 2013 Outlook by ACE Trades (Mike Lim)
For 2013 I like the consumer, construction and banking industry. Consumer stocks simply because of the high GDP growth and increasing OFW remittances; Higher GDP growth + Strong OFW means higher consumer spending. Consumer stocks such as SMPH, PGOLD, RFM and PIP would be direct beneficiaries to this. My personal pick would be SMPH, also notice SMPH starts going up during December.
Construction and banking simply because of the PPP (private-public-partnership) program of the Aquino Admin; We already saw EEI and HLCM go up this year because of the PPP play. Banking would also benefit from the PPP as more projects = more loans = more income for the banks. Right now the government has 8 projects in the pipeline (PPP for School Infrastructure Project Phase , NAIA Expressway Phase II, LRT Line 1 Cavite Extension and O&M, Modernization of Philippine Orthopedic Center, Rehabilitation, O&M of Angat Hydro-Electric Powerplant Auxilliary Turbines 4 & 5, Automatic Fare Collection System, PPP for School Infrastructure Project Phase II, and the Mactan Cebu International Airport Passenger Terminal Building)
My personal pick for banking would be BDO and EW. EW though right now I think is a bit high. If it goes down to 27 I would consider it an opportunity to buy. I will reveal my pick for the construction sector in future issues of this newsletter.
The mining counter which was the darling of last year, underperformed due to A.) The PX issue and B.) The mining EO. The mining EO which took like forever to come out did not bode well for mining stocks. For 2013, the mining counter still have some hurdles to face. PX still has to deal with the 1B fine and now the government plans to slap double taxes on companies. Seems like the Aquino admin is not a big fan of mining . If I were to choose one mining stock it would be PX – the mining counter moves with PX (look at the chart comparison below). Also SSS is a big supporter of PX – so every working Filipino technically owns PX indirectly . There is potential money to be made from PX especially in the latter parts of 2013 when they would be resuming operations. Remember though that PX still has to face EO issues plus surely it will be reporting losses in 2012. Right now there is money to be made in other more attractive stocks like the one we are featuring below.
PSE (the stock) – Alpha Playbook featured stock of the week
- Profit growth of more than 100% for PSE
- Hefty dividends (historically)
- Rounding bottom with potential MINIMUM upside TP of 500 Holding Period – 60 to 90 days
- Potential Return of 20% to 50% in 90 days
- Support 1 – 410, Support 2 – 400
- Resistance 1 – 420, Resistance 2 – 440
We talked about how PSE had a banner year so isn’t it obvious that we bet on PSE the stock? Extended trading hours plus increase volume means more earnings for PSE; also remember when Buffet said to invest in monopolies? This a very good example.
Now let us look at some facts, we saw several IPO’s this year – GTCAP , EW, CAL, COAL which drove PSE earnings to improve by more than 100% for the first nine months ALONE. ( see link > http://business.inquirer.net/93310/stock-exchange-reports-doubling-of-profits-to-p485-m) Now remember this still has not taken into account the DN IPO we just had this December. This guarantees that PSE earnings would be more than DOUBLE for 2012.
To understand the future we must first look into the past. Looking at the chart of PSE from 2011 we could see that the stock historically goes up during the 1Q particularly from February to March.
Looking at the shorter term chart – PSE seems to be forming a rounding bottom with Minimum upside of 500. Support at 400 has been validated, action starts at 420, if this breaks PSE would soar.
Aside from the more than 100% in earnings, why do PSE go up during the 1Q? People speculate on hefty dividends that the company may issue. Now lets look at the table below, PSE declared 100% stock dividends in 2011 and a combined cash divs of 7 pesos for this year. With the performance of PSE this year, it is very likely that we could expect another round of generous dividends from PSE in 1Q 2013.
Need more hints that PSE would be declaring generous dividends? Well how about the P200M cash divs declared for its wholly owned subsidiary – Securities Clearing Corp. of the Philippines. (SCCP). http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-8965_PSE.pdf
PSE also declared divs of P148/share for SCCP before declaring the handsome cash divs om 2011 http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-8617_PSE.pdf
PSE has earmarked P1B as contribution for its new headquarters at the fort global city. Now based on my limited knowledge, Companies announce stock dividends when they need cash so as to satisfy their investors. So possible chance that PSE declare 100% stock divs again as they plan to raise more capital? Remember uptrend is more dramatic when PSE declares stock divs.
Quick Alpha Plays – IP
IPVG Corp. (IP) Quick Snapshot:
- Reversal sign # 1 – inverted hammer followed by solid white candle
- Reversal sign #2 – Gap up to 0.57 hints of reversal
- Reversal sign #3 – RSI Breakout after more than 1 month consolidation below 30%
- Key figures to remember – Support 1-0.54, Support 2-0.57, Resistance 1-0.6, Resistance 2-0.7
- Suggested Trading Strategy – Buy if 0.6 breaks
- First TP of 0.7 or return of around 12%
IPVG Corp. has been on a downtrend since November. However, news came out last week that the company would be converted into a holding company. The speculation here is that book value would be adjusted (increase) after the conversion. Price action would also suggest that there may be a reversal soon. First sign would be the hammer which is a bullish reversal signal being confirmed by the solid white body the next day which has significant volume. Bullishness was carried over the next day as evidenced by the gap up which suggests that buyers are willing to buy at prices higher than the previous day’s trading range. However, we should note that the last two candles have small real bodies which suggest narrow ranges and volume has been significantly reduced. This may be due though to the long weekend which may have reduced the number of players in the market. IP now though face strong resistance at 0.6. This should break otherwise the stock may continue to trade within the range of 0.54 to 0.6.
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“Please note that all information in this newsletter only reflects the opinion of the writer. How the information would be used would be to the discretion of the reader. Any gain/loss that would result from reading this newsletter would therefore be to the credit of the reader and not the writer.”