Tuesday, September 11, 2001

September 11, 2001

A Perspective

It's been a while hasn't it? And I've been saying that with greater frequency. Well my apologies to you site readers. I have been preoccupied with a lot of things. First of all, I'd like to congratulate my really good friend Anj, who got married last September 8. Too bad for single guys. She's one of the most engaging conversationalists I've ever come across. But back to the market now.

And so the Phisix is once again below the 1,300 level. A couple of weeks ago (or was it over a month already), I took a chance at three major issues. I bought TEL, MERB and AC. It was the gambler in me. After all, it has been a while since I put my money where my mouth is. The first two traded at 8-year lows, while AC was technically battered. Among the three, MERB has performed mightily, rising from P37.50 to P48 yesterday. Yummy profits for those who opted to wait.

TEL on the other hand came tumbling down. Just a while ago, I read a couple of articles detailing the gore of the telecommunications industry in the US. Gosh, these companies are HEAVILY indebted. The conservative analyst in me would accept a 1:1 debt / equity ratio. But these telcos, according to the articles had DE ratios of over 10. Eek! And thus, with the dotcom meltdown, the telcos lost the market's favor. In a way, that happened to PLDT too. Plagued by the very same heavy capital expenditures and resulting debts, the company was on the verge of breaching a debt covenant with its creditors. And boy did the foreign brokers sell when that report came out. And so came TEL, tumbling down to P475. Do you even remember when PLDT last traded at those levels? Not in my stock trading lifetime. Well, the issue almost singlehandedly brought the rest of the index down with it.

Am I optimistic on the stock? Well, I really just bought it because it was relatively dirt cheap. But I was never a PLDT fan to begin with. Assuming the company manages to stay afloat by refinancing all its debts, can it actually pare down its obligations in the coming years? I really don't think so. By the time the company would have enough cash flows to cut down its debt, it would probably be time to shell out billions again to prepare for 3G. That's some pretty expensive technology you got there.

Now let's look at the US economy. Alan and friends have been very aggressive with those rate cuts huh? "No to recession!" they seem to be chanting. But the dotcom meltdown isn't over at all. In fact, the massive debts of these technology companies will take their toll on financial institutions next. Imagine billions of dollars that cannot be collected. They may just find that their banking industry NPLs have already equaled ours. I wonder if they have a PNB counterpart. Yikes. In any case, the point is that an economy can be likened to a chain of industries. Prick one of those and expect the effects to spread. Let's spell contagion.

As for poor ol' country, well we better find an alternative major export market soon. It's either that or we focus on developing internal demand. What are the chances of that? Not optimistic I think.

Jollibee could be great in times like these. Can you think of a better cash cow? But even JFC is having a hard time maintaining its finances. For the first time in years, JFC had to resort to debt financing. Oh well, perhaps when that commissary is finally finished, we'll see a clean balance sheeted JFC again. SMC could be a candidate, but my principles cannot stomach recommending a Cojuangco-led company. What else? What else?

Any suggestions?


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