Philippine Stock Market Research

Former Bargain Stocks (Past Losers That are Now Today’s Winners)

August 23, 2010

It’s good to look back at former bargain stocks that have now increased in value and have provided investors with great returns.

AP. It wasn’t about WESM prices back in 2009 but that clean, solid balance sheet in a sector that holds a lot of promise and prospects.  Everybody loved EDC that time, but when AP, known for hydro-electric power plants, acquired the Tiwi-Makban geothermal complex, that’s when the attention shifted and shifted it did as AP rallied from a low of PHP5.60 to a high of PHP20.50.  AP’s balance sheet weakened in 2009, however, it is slowly recovering in 1H10.  This stock’s blended multiplier was 11.4x.  Look at where it is now in the table below.  If you have a big fat smile right now, you must be an AP investor.

AEV. Believe it or not, AP’s mother company, AEV, was trading below it’s Estimated Liquidation Value (ELV) of PHP6.14 per share in 1H09.  That’s the value you get when you turn the entire company into cash.   Now of course, AEV benefited from AP’s meteoric rise, and it follows that if you have been bullish on AP, you got to buy AEV too.  AEV has some merit in its fundamentals.  You got to be impressed by those hefty margins, generally increasing ROA, ROE and ROIC.  Financial condition is not as good though, however, this is a company that is conservatively-run and you know they will  fix that pronto.  Right now, AP’s income is doing the fixing in AEV’s balance sheet.  AEV is now PHP22.30 per share.

SMDC. Investors were apprehensive on SMDC the most of last year.  Most view that it won’t measure up to ALI, MEG or even RLC.  However, one cannot ignore the strength of its sales and aggressive marketing using TV personality Marian Rivera.  It offers affordable condo units near SM Malls, and the units were selling like hotcakes.  It was selling “the dream”.  Aside from that, you have a strong balance sheet and that buyer-alluring name “SM” on “SM Residences”.  From PHP3.65, it’s now PHP7.10.

SM. SM would have shielded your investment portfolio against Greece, China and the US recession fears in 1H10, and that’s a fact.  Like AEV, SM was likewise trading below its ELV of PHP255.28  in 1Q09.  This is the retail and banking giant we’re talking about, and it made no sense for this stock to remain at those levels.  From the PHP200 level, it’s now PHP495 per share.  In our table below, SM is still acquirable at reasonable valuations if you average a purchase of an equal number of shares with a bargain stock.  SM is expanding here and in China, and subsidiary SM Land may be able to acquire the 33.1-hectare South Bonifacio lot in 2H10 giving SM its first major mixed-use urban development project.

URC. Like SM, URC would have shielded your investment portfolio in early 1H10.  URC has a solid balance sheet and is quietly dominating Southeast Asia with C2 and Jack ‘n Jill products.  This is not just a company that caters to the Philippines anymore.  Its branded consumer foods products are becoming popular in the region.  It was also trading below its ELV of PHP14.53 in 2009.  Now it’s at its highest of PHP35.65 per share.

AMC. This is probably the most silent stock to surge in value.  From PHP3.80 in early 2009, it’s now PHP13.76.  It is fundamentally sound, a market leader and it is overflowing with what we call residual value.  No wonder its major shareholders won’t sell.  They’re just going to bask in cash dividends every year.  AMC likewise continues to benefit from manageable Skimmed Milk Products (SMP) prices.  One major lesson to follow is that even if a stock has a low float but has good fundamentals and cash dividend history, better Buy it.  I’m sure a lot missed on this high-flying stock.

After reminiscing with past bargain stocks that were doubted and have outperformed the PSEi and other stocks, below are today’s bargain stocks. (You can click the table to magnify it if you prefer bigger fonts).  The first bar separates bargain from premium stocks. Bargain stocks trade below the blended multiplier limit for this week of 30.17x.  This is based on the average ICAP peso bond funds average year-to-date return.  We use bond yields to determine stocks’ valuation limit.

Stocks between the first and second bar are premium stocks that can still be acquired along with bargain stocks and still stay below the blended multiplier limit.  An example is purchasing an equal number of FPH and BDO shares.  The average blended multiplier of  the two is 28.14x, still below the blended multiplier limit of 30.17x.


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