Sunday, May 07, 2000

May 7, 2000

Form over substance

Since I've nothing sensible to say, well all my life, I just decided to do a bit of a makeover for the site. Don't know about you guys, but it looks a lot more user friendly to me. As has been the motto of so many pretentious teens and yuppies before me, if you have nothing sensible to say then just look good. Get a BMW and wear imported clothes.

Di na masarap ang langhap...

As I've theorized a couple of weeks ago, JFC did announce poor first quarter earnings. Unfortunately I don't have my notes with me at home so I can't be giving you guys exact figures. I do remember a 5% increase in revenues and a 5% drop in net earnings. The drop in earnings was due to an increase in operating expenses with the wage hike implemented at the start of the year. What happened?

Demand remains weak even for the consumer sector. That does not really speak well of the economy since we expected a consumption-led recovery for this year. Last year, growth was largely due to fiscal spending, but with the strict budget deficit targets set by the IMF for the government, something else must take over this year to make the growth sustainable.

In any case, what does this say regarding the investment prospects for JFC. I recently read a quote from Warren Buffet (naks parang close kami) that he likes companies that will be doing the same thing ten years from now. Actually the ten years is more my invention because I don't remember exactly what he said. His point is like there is a measure of security if you know the company will continue to thrive without having to radically alter its business. I'd say that's very consumer oriented - people will continue eating burgers and drinking beer the same way even when their 2110's have given way to some WAP-enabled phone, and their 64MB-RAM PC's can no longer run Windows 2010.

It is thus inherent in JFC's business for it to survive. On the company level, well the company has minimal debt, over P1bn in cash and stable cash flows. I would hastily conclude then that the business is viable on the long term. Compare this with your C&P or UP or even your companies listed in the Nasdaq which are all losing cash. The only problem with JFC right now is that it will not give you superior returns this year. Thus even if I'm totally in love with the balance sheet and cash flows of this company, I cannot find it in my heart to recommend it right now. So HOLD muna tayo mga pare. My bets for the year are on La Tondena.

May 5

Market Review

With virtually no reason to buy, investor participation for the week, including today has virtually dried up. Had it not been for the P8.4bn block sale of BPI shares yesterday, value turnover for the week would average below P1bn. Today turnover just reached P914mn with the index dropping 1.44 points. Despite the relatively sideways movement of the index, market breadth generally gave the mood away with decliners doubling the number of gaining issues. Quite typically, action was limited to select stocks, with the top ten most active issues accounting for over 74% of total value turnover. PLDT supported the index as it gained P20 on account of a technical bounce. Speculations of poor first quarter earnings caused many investors to press the sell button for PLDT, which in effect drove the share price down to a 20-month low at P735. Nonetheless it would seem that selling pressure on PLDT remains as it traded on a wide P45 range today, hitting an intraday low of P740 as it likewise did yesterday.

SMCB was the next most popular stock as investors sold below the P52 level where the share price has lingered for the past two weeks. The share price hit a high of P56 after the company announced sterling revenues for the first quarter, and has since rested in the P52 level. Earlier, the government expressed optimism that Danding Cojuangco will help create the Coconut Industry Trust even if the Sandiganbayan unfreezes the sequestered 27% stake of Cojuangco in SMC.

With the market's sluggish performance, it was thus evident that the 3.7% annual inflation in April was ignored by investors, even as it fell below the 4.01% consensus forecast. Instead investors focused the upcoming Fed meeting. Chances are, the board will raise its rates by 25-50 basis points, which in turn might prompt the BSP to impose a follow-up rate hike on its overnights. Any rate hike at the local front at this point could be detrimental to property companies which are perceived to be the most vulnerable to interest rates given the industry's debt load which was brought about by the 1997 Asian Currency crisis.

Market Outlook

Apart from a few technical plays, we don't expect much from the market. Expect the volumes to concentrate on stocks that are subject to external factors, such as companies with shares traded abroad. As such that would generally mean PLDT, Sunlife and Manulife, as regional investors seek arbitrage opportunities as against long term investments. In what we would concede as a bad market, we would suggest that investors who wish to continue having stock positions flock to companies with strong earnings for the first quarter, are resistant to rate hikes and are generally apolitical.


Dare to Take a Risk?

If you're brave enough to invest with our kind of market, I have a few technical picks you might want to check out. BPC at P5.30, ICT at P1.4, MPC at P0.63 (could bottom at P0.55), and SGI at P1.2 (could bottom at P1.1). That's all I guess. I still have a long weekend hangover.


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