May 5, 2021
A Snapshot of Our Philippine Stocks Universe
We would like to take a snapshot of our universe of Philippine stocks. We have customized our very own stocks screener to derive the best investments. This is according to the stringent parameters below arranged in priority from top to bottom.
- Positive Residual Value
- Blended Multiplier of below 24x.
- Price to Earnings Growth (PEG) below 1x
- Price to Cash-flow (PCF) below 16x
- Positive Net Income Margin (NIM) favorably at high single-digits or higher
- Positive Net Working Capital
- Positive NIM Growth favorably at high single-digits or higher
- Negative Net Debt to Equity Ratio
Since it was first utilized in 2018, the stocks screener has been very helpful and effective in generating superior yield compared to the PSEi and All-Shares Index (ASI). This time though, we have to be mindful of the pandemic which disrupted the operations of all of the listed companies.
Our stocks screener is regularly maintained and utilized in our stocks research services for individuals and institutions. As it benefits us, it also benefits the subscribers of our service as it gives guidance for the volatile stock market.
Now there are 200 plus stocks in the ASI. 147 of which are found relevant by us. This means they have a semblance of an adequate income stream and acceptable financial condition. Of these stocks, 135 are non-bank and 12 are bank stocks.
As of the latest results, the average net income decline of the stocks universe is 29.94%. Only 31 stocks have strong profitability. This means they generated income and growth despite the harsh conditions of the pandemic.
60 stocks also have strong financial conditions, while ten stocks have weak financial conditions. Financial condition is strong when liquidity is high and debt low and manageable. The opposite of this puts the listed company in survival mode.
Going over to valuations, the average trailing 12 months (ttm) Price to Earnings Ratio (PER) of the stocks universe is 93x. 58 stocks also have PERs less than the 16x mark placing them in bargain territory.
The average Price to Book Value (PBV) of the stocks universe is 1.54x, and 78 stocks have PBV less than the 1x mark. The average Price to Cash-flow (PCF) is likewise 87.53x, and 43 stocks have PCF less than 16x. Meanwhile, 75 stocks have upside to their discounted cash flow (DCF) per share.
Looking at the valuations, an average of 43% of the 147-stocks universe are in bargain territory. In addition to this, 52 or 35% of the 147 stocks are trading below Estimated Liquidation Value (ELV) or scrap value. These show the degree of bargains the Philippine stock market has.
Meanwhile, the Philippine inflation rate was 4.5% last April 2021, and 23 stocks pay cash dividends with yields higher than the Philippine inflation rate. This shields investors from the constant erosion of the value of their money.
Regardless of the identified bargain and high cash dividend stocks, we want winners. We want the stocks with the widest moats or protection from risk. We want the stocks that passed through our stocks screener. Out of 147 stocks, 12 are chosen to be components of our stocks portfolio.
However, we will not be buying just as yet. The PSEi is currently 26.70x PER. Post-pandemic PER is also estimated at 20.12x 2022F PER which is still pricey for us. The resulting stocks-to-cash ratio from this is only a measly 15%.
So like a seasoned sniper, hunter, fisherman, farmer, or value investor, we patiently wait to utilize our treasured funds and time to position in stocks at the right time. This is like planting season for a farmer and feeding time of wild game and fish for hunters and fishermen.
And while we patiently wait, let us stay safe from the COVID-19 virus. Let us take advantage of the online or gig economy if we are unemployed. Let us enrich our minds with the classics, and take care of our families. The next market drop is a golden opportunity. Let us be prepared for it.
This 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. Pictures in this report cannot be copied or redistributed and are owned by Corpecon Research.