Philippine Stock Market Research

Highly-Undervalued Philippine Stocks

July 11, 2011

Believe it or not, there are stocks with ridiculously enormous discounts found in the Philippine Stock Market.  In every investing season there comes a select group of stocks that modifies your portfolio with an afterburner jet engine to thrust your portfolio above everyone else’s.  These stocks aren’t of the speculative kind.  They are sound, have value and prospects but are buried deep behind popular stocks that trade at huge multiples, popular stocks that the trading public adore and adore nothing else.  Well, what we adore is making huge returns and preserving our capital, and we love to include these dirt-cheap overlooked stocks in our portfolio.  Now, we want to share them outside the circle of good people that we service.

PHN – At its share price of PHP12.30, the stock is trading 15% below its Estimated Liquidation Value (ELV) of PHP14.90.  This is the value you get when you convert all the company’s assets into cash like in a closing out and sale of the company.  At PHP12.30, you’re just buying cash, receivables and part of inventory.  This means that PHP12.30 is just equivalent to the company’s cash or near-cash assets (liquid assets).  By buying PHN at PHP12.30, you get the Property, Plant and Equipment of roofing company UGC, investment properties or mainly the land where PHN’s four universities are and other assets for Free.  You’re only paying for the cash and near-cash assets remember?  PHN is also getting strong equity earnings from affiliates TA and Phinma Properties.  PHN has a strong balance sheet that can finance new business acquisitions to bolster its somewhat boring profitability from its current main business of roofing.  PHN already bought Research and Consulting BPO Fuld & Co. to address this concern in 2011.

RCB – At PHP27.30, the bank is trading 24% below ELV of PHP33.77.  At PHP27.30, you’re just buying cash and receivables from BSP and other banks.  These are all very liquid assets.  You get the loans, its swanky Head Office in Ayala and the bank’s other assets as Bonuses.  RCB’s ELV is also safely below the bank’s 2011F book value of PHP35.03.  IFC also bought into this bank as a major shareholder last year.  That’s IFC.  That made major and rigorous Due Diligence (DD) to see RCB as a good investment.  It is a confidence booster that one of the major financial institutions in the world invested in RCB.  It is like IFC did investors a major favor with its DD.  This should be part of one’s portfolio.

FPH – At PHP60.70, the stock is trading 45% below ELV of PHP87.72.  At PHP60.70, you’re just buying cash and receivables.  At PHP60.70, you get for Free, inventories, other assets and FPH’s interests in the Sta. Rita and San Lorenzo combined cycle plants in Batangas.  FPH is also the main beneficiary of developments from subsidiary FGEN and affiliate EDC.  FGEN has a chance to own 100% of the two plants mentioned within the year, and EDC’ rehab of its Bacman power plant may be completed by next month.  All these positive developments flow to FPH justifying share price appreciation.

Last and the best,

ETON – At PHP3.35, the stock is trading 58% below ELV of PHP5.30.  At PHP3.35, you’re just buying cash, receivables and a small part of real estate inventory.  You buy for Free Prime Investment Properties in Makati, Taft, Roxas Blvd, Ortigas, QC and other areas and other assets.  These are real and prime assets the investor gets free at current price.  This is just nuts.  ETON has already made 20% of its PHP1 bn net income target this year too in 1Q11.  At ELV, the stock is still cheap.  PHP9.64 is the next target price just to level with 2011 market values.  This is a stock that can potentially almost triple investors’ returns.

Now others will say that the problem with ETON is its low free float or small number of shares trading in the market to buy.  This is actually good for small investors than big funds that invest in stocks.  There are enough shares for small investors to buy.  The big funds can’t buy because the number of shares out there is too small for them to acquire.  The little guy wins here being able to invest in a highly-undervalued stock.  There’s another good thing here.  Low free float (low number of shares) and high demand for shares when everyone else realizes how cheap ETON is can shoot share price up quickly.  This is also what happened to AMC from 2009 to 2010.  It has a low free float, but highly-undervalued and has solid fundamentals.  From PHP3.50, AMC just followed the normal course of stocks achieving their market value.  It went to PHP13.50.

Below are former highly-undervalued stocks that we called.

AEV – PHP6.66 in September 2009, PHP35.68 in the end of 2010

SM – PHP313.30 in September 2009, PHP534.31 in the end of 2010

URC – PHP10.11 in September 2009, PHP33.36 in the end of 2010

VLL – PHP1.83 in January 2010, PHP3.14 in the end of 2010

AGI – PHP5.58 in July 2010, PHP12.50 in the end of 2010

ATS – PHP1.03 in July 2010, shares offered for PHP1.88 by Nenaco in beginning of 2011

COAT– PHP2.47 in Janurary 2011, PHP2.77 last Friday

Some of them like AEV, AGI, SM and URC became popular stocks.  It’s a wonder that traders buy them now now they are popular.  Investors bought them before when they were providing more for one’s buck.

Disclaimer

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.