Inflation, COVID data tug investor sentiment

Investors at the local stock market will be looking out for the June inflation rate to be released this week while sentiment is also being swayed by rising COVID-19 cases on one hand and improving economic data overseas on the other.

“We're seeing the market to move sideways as investors still weigh economic recovery hopes against the mounting cases of coronavirus in the Philippines, while waiting for the inflation rate data,” said Philstocks Financial Research Associate Claire Alviar. 

She noted that, “the anticipated benign June inflation rate to be released next week could add positive sentiment as this may, at least, strengthen purchasing power -helpful to consumer stocks, as well as for the overall economy.”

However, Alviar said record reported single day cases are a concern for investors and “traders should still be cautious trading the market as the virus has not yet been contained.”

In contrast, she said “optimism for the week ahead could be higher given the strong data coming out offshore.” These include the better-than-expected US jobs report and the higher production index in China.

“These can boost investors' sentiment as it can be viewed as the beginning of economic recovery. Here at home, recovery hopes have also started as the government eased lockdown measures, and more businesses have reopened with additional modes of transportation now available,” she added.

While stock prices had started to recover late last week, Abacus Securities is still looking at a few laggards which have enough reason to catch up with the rest of the market.

Among these is Philex Mining which will benefit from improved prices of gold and copper.

“We prefer PX as a vehicle to ride rising metal prices as operations were able to continue even during quarantine… the company’s production has been relatively steady and we expect little change this quarter,” Abacus noted.

It added that, “much lower oil prices will help drive operating costs per ton lower. If gold manages to stay above $1,750 per ounce and copper at $2.70 per pound or better, and everything else remains constant, Philex’s third quarter net profit could more than quadruple YoY. This should be enough to help narrow the price performance over the past year.” 

Abacus also favors Cosco Capital whose core profit is rising due to its stake in Puregold Price Club which has been experiencing strong earnings growth amid the pandemic.

“We reiterate our BUY rating on the stock as its current share price trades at a steep discount against its net asset value and it is a cheaper alternative to buy than Puregold,” it added.

COL Financial also has aBUY rating on Cosco as it “remains severely undervalued with the market not valuing its other businesses (apart from Puregold) like the liquor distribution and real estate business.” “In fact, if we only value Cosco (adjusting for parent net debt) for its 49 percent stake in Puregold based on the latter’s market value, this still translates to… a 76percent upside to COSCO’s current price,” COL noted.