Stocks: Cautious optimism amid stimulus

Published August 24, 2020, 5:00 AM

by James A. Loyola

Investors are seen to be turning cautiously optimistic following the Senate ratification of the Bayanihan to Recover as One Act (Bayanihan 2) economic stimulus package although risks remain as the daily tally of new COVID-19 cases remain high.

“Policy will be a key lever in the next few weeks as attention shifts once more to state actions versus still-rising COVID-19 cases,” said online brokerage firm 2TradeAsia.com.

On top of these, the brokerage firm cited the BSP’s move to ease bank limits to real estate loans, from 20 percent to 25 percent, and the additional 5 percent ceiling increase that translates to P1.2 trillion additional liquidity available for real estate loans, which should incentivize home buying over the next few quarters.

Philstocks Financial Senior Analyst Japhet Tantiangco noted though that the local market failed to hold its position above the 6,100 resistance level due to the lingering uncertainties in the economic and health situation.

“Moving forward, the said uncertainties may continue to hinder us from taking the 6,100 technical barrier. The Bicameral Conference Committee’s approval of the Bayanihan 2 could somehow provide relief but may not be enough to bring forth a sustainable rally as risks remain elevated,” he said.

Tantiangco pointed out that, “As local COVID-19 cases continue to rise at an intensified scale (with this week’s new cases averaging 4,224 per day so far), the recovery of investor confidence towards the economy and jobs lost remains difficult. This in turn will keep the economy operating below full capacity.”

Thus, he expects the market to trade with a downward bias within the 5,700 to 6,100 range.

BDO Unibank Chief Market Strategist Jonathan Ravelas sees last week’s close at 6,005.40 as having highlighted the strong support at the 5,700 levels.

“Look to see the rally to stay above the 6,000 levels. A sustained rise could see a move towards the 6,300 levels in the near-term. Failure to stay above the 6,000 levels could signal a retest of the 5,700 levels,” he added.

According to 2TradeAsia.com, “barring further black swan events plus steady stream of fiscal support, the opinion that fundamental drivers could only improve relative to the second quarter is not unreasonable at all. Ride the market’s cautious optimism. Immediate support is 6,000, secondary at 5,800, resistance is 6,250.”

 Amid these backdrop, stock analysts are recommending issues that remain undervalued and those that offer good yields.

COL Financial currently has a BUY 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 PGOLD based on the latter’s market value, this still translates to a target price of P9.90 per share.”

Meanwhile, COL is maintaining its BUY rating for Alliance Global Group given that the company’s valuations are “very attractive.”

It said that, AGI’s stake in Emperador is already worth more than AGI’s market cap. At EMP’s current price of P10.10 per share, AGI’s stake is worth P133.5 billion. This is equivalent to P13.21 per share of AGI.

 “If we deduct parent level net debt, the value of AGI’s stake in EMP still comes out to P112.51 billion or P11.13 per share, which is also 79.5 percent higher than AGI’s current price,” COL said.

Abacus Securities Corporation is also recommending a slow accumulation of AGI shares because “we expect sequential improvement in the next quarters due to the easing of lockdowns. More importantly, an updated valuation shows that the stock is still trading at a wide discount to its Net Asset Value (NAV).”

Abacus is also recommending LT Group because subsidiary and main earnings driver PMFTC managed to post growth in the second quarter despite the lockdowns. This indicates that its second half will be at least as strong and bodes well for 2021 onwards.

 COL also has a BUY rating for GMA Network because of its higher than expected first half earnings. “GMA7’s viewership has likely increased now that it is the only dominant network in the free-to-air broadcast space… as operations start to normalize and assuming that GMA7 remains the only dominant player, we believe the company will likely see an increase in ad placements,” COL said

 
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