Wallflowers and Beauty Queens
February 14, 2011
One of the difficulties in writing about the Philippine Stock Market is that investors have various and different investment strategies. This comes from the various research styles of their stockbrokers or their own personal style of investing. Unfortunately, as we have written before, most of these strategies are not about investing at all but about trading. I guess this is an important preface before we start talking about how we see the Philippine Stock Market.
Below is how the PSEi looks like from the September rally to the present and its counterpart asset class, corporate bonds looks like in that same time period. The inverse relationship has held with the PSEi naturally more volatile than the other. Inflation pressures have caused a realignment of investment portfolios to safer securities such as bonds. As of Friday, there are 14 bargain stocks and ten reasonably-priced premium stocks according to our law of averages. Combined, this is 50% of the 48 stocks we cover.
The PSEi’s slide in 2011 has enriched the number of value stocks in the market. Notable bargain stocks are RLC at an 18.6x blended multiplier, a discount to the 24x blended multiplier mark separating value from expensive stocks. FPH and VLL are still ridiculously cheap, and we like COAT, CHIB, RFM and UBP very much because they outperform their WACCs or investors’ minimum expected returns. RCB, FGEN and FLI look promising as well. As for reasonably-priced premium stocks, GMA7, SECB, ETON and MWC are our main preferences. AC, MEG and then finally, SM (at last! Gotcha!) are also highly recommended. Right around the corner is URC. Catch that chocolate at PHP30 per share. It’s near.
After the Pymwymi Fund, we made another investment portfolio consisting of stock purchases on September 13 and 17 and November 8, 2010. The Pymwymi Fund has generated superior returns and has exhibited resilience in its existence, and our new portfolio has likewise performed well since it was made with the same methodology as its predecessor. Despite the PSEi’s 8.04% drop from our acquisition dates to the present, our new portfolio has exhibited resilience, declining by only 1.74%. The new portfolio also generated a dividend yield of 4.05%. This portfolio is 99% made up of stocks nobody likes. They are the wallflowers in the eternal beauty pageant or popularity contest of the Philippine Stock Market. Thus, we shall name this new investment portfolio or fund, the Wallflower Fund. Happy Valentine’s day.
The Philippine Stock Market Research report is solely for information. It should not be constituted as an offer for solicitation for the purchase or sale of securities mentioned. The information herein has been obtained from sources believed to be reliable. Whilst every effort has been made to ensure accuracy, we do not guarantee the accuracy or completeness of the report. All opinions and estimates expressed herein constitute our judgment as of this date made on a reasonable basis and are subject to change without notice. No liability can be expected for any loss arising from the use of this report or its contents. As this is general information, it does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may obtain this report.