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Question: Why is my favorite stock not going up while
the market is advancing?
Answer:
Maybe, just maybe, because the company you are in love
with is terrible and not worth anymore than its current
price, if even that.
All
right, I admit it; I am not in a good mood. One more day
with this rotten cold, and I think I will shoot myself.
But my
bad attitude is not all my fault. In a stock market that
is creating investor wealth almost every day, people
forget that the stock market is a business. Too many
people act like a person playing at the casino.
Q: Well,
that guy made a million betting black on the roulette
wheel; when am I going to win my million on red?
Answer:
Maybe never.
Honestly, there is absolutely no excuse for not having
made a fortune on the Philippine stock market in the
last 12 months. PLDT is up a clean 35 percent from a
year ago. Megaworld doubled in price. Robinsons Land is
up by 30 percent. Philex Mining more than doubled.
Meralco tripled in price. Globe went up by more than 40
percent. The list goes on and on.
Where
have you been? What more can an investor ever expect in
a stock market?
Buying
these issues did not require any secret knowledge, hot
tips, tricky strategies or special training. The economy
is rising; basic industry stocks are also rising. This
last year has been a no-brainer for stock-market
investors. Probably the less sophisticated you were, the
more money you made because you just bought the
blue-chip, name-brand shares.
If you
have been sitting on issues that have not followed the
market, you are like the person that stays betting red
while he sees black come up time after time after time
and will not make a move.
Ok. The
cold medicine is starting to kick in, so maybe I can be
more objective.
At some
point, unless your company is an absolute dead dog with
a management team that could not make profits even if
money grew on trees, your shares will eventually follow
the general market trend, which is up, and will continue
to go up.
I still
keep waiting for the rotation to start seriously into
the small cap and second-liners. We have had several
days of that kind of trading but, obviously, this next
phase of the market has not come into full bloom. Just
wait. It will. And when it comes, certainly by the
beginning of 2008, your undervalued, underappreciated
stock will move.
However,
the market will not carry bad companies along with it
too far. The key to the deal for share prices that have
not moved is to make sure those companies are really
undervalued and not a financial disaster as far as the
stock market is concerned.
There
are probable two dozen companies on the stock exchange
that fall clearly into the category of undervalued and
underappreciated. They are incredibly of good value and,
eventually, we will see their share price double and
maybe triple through the next phase of this roaring bull
market. So how do you spot them?
Simply
put, earnings show the size of the company’s financial
engine, and the price-earnings ratio,or PER, tells you
how far the stock can travel.
Look at
your company’s earnings growth compared with 2006. With
business conditions running as favorable as they have
been, a 20-percent increase in net operating profits in
the first and second quarters of 2006 should have been a
hit. If not, find out why.
If your
company did not make significantly more this year than
last, the management might be doing something terribly
wrong and you need to dump that particular stock
quickly.
Once you
have determined that the financial engine of the company
is sound, then look at the PER. If the earnings are good
and the PER is low, congratulations! You have found a
potential big winner that is truly undervalued and
underappreciated.
It is
best to use PLDT as a benchmark. The current PER for
PLDT is about 15. Globe is about 18. Megaworld around 26
and Meralco is 6. These are only indicators and not hard
and fast rules. Megaworld has a high PER because future
earning estimates are off the chart. Meralco is low
because, well, it’s Meralco.
You can
easily go to the Philippine Stock Exchange (PSE) web
site and get the PER information. You, most definitely,
should do that.
My
opinion is that PLDT should be trading at a PER of not
less than 20, so that puts the future price to at least
P3,500. For smaller-cap stocks I would think that 15 is
the minimum, and if the industry sector is hot like
property, mining, IT and the like, or if the company is
doing great things, even a PER higher than 20 is
acceptable.
We have
an absolutely fantastic stock market, populated by very
good companies. Shoot the dog stocks if you have to and
move into the winners. If you do not make money on the
PSE, you have no one to blame but yourself.
E-mail comments to mangun@email.com. |
