COL Sector Outlook & Stock Picks with April Tan (Part 3)

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“So recently we removed seminar sec from our stock picks. Okay the reason. Why we we removed. It is because we learned that it s coal mining business continues to challenges so when we talk to the company.

We we learned that its fourth quarter numbers will remain disappointing. Because it had some challenges in exporting the coal to china chinese customers and coal prices right now remain depressed. So that should also hurt the 2019 earnings of the company that said. Though.

If ever you do own the stock and you want to keep it we feel like it s fine. Because we think that this is the share price has gone down a lot and this this negative is already priced in okay. The stock after all is very cheap currently trading at eight times pe and it provides a six point four percent dividend yield. Okay and it still provides 50 percent upside to our fair value estimate and this is after factoring in all the negatives.

The main reason why we removed it in our list is because the problem that it s encountering right now is because of the pressed poll prices which we think may persist for a long period of time because the drop in oil. The drop in gold prices is due to two factors one is the global economic slowdown and the other is because there s an oversupply due to over production from australia and indonesia. And the oversupply problem may not be resolved in the near term. So we don t know when share prices of scc.

We ll recover it might take a while so that s our only concern. But we feel like you know valuations are okay so if you can hold on to this top..

Then please feel free to keep it there s no problem at least. You still get a 6 fashion evident on the stuff for the month of january. The index is already up by 7. And there is a possibility that a lot of the blue chip stocks will become very expensive that you can t buy anything anymore.

So usually when that happens we see a rotation into smaller cap stocks for value stocks so in light of that there are some socks that we also like but if ever there is some rotations we could see some interest in the following stocks the first stop could be mpi you know investors are concerned about the status of tariff increases for its toll projects for its water project. But that said the stuff is really very cheap at the current price. It s only valuing its subsidiary or meralco. Which is it s taken meralco.

Which really makes it very cheap okay. Other value stocks that we like include agi and fph okay. We this chart these stocks are very cheap. However since they re holding companies usually the preference is for investors to buy the underlying stocks for example hg ice major subsidiaries would be mega world then it has rwm pmp.

So they re all listed so generally investors would prefer buying the underlying companies rather than the holding company. But then you know if all of these stocks become expensive then they will ship to egi another holding company is fpa again. I think the focus might be on fph first our sorry on fgn first which is the major subsidiary before it goes to f ph. But then if there s there are no more stocks to buy then maybe the interest will go to f th.

So other value stocks that could generate some interest would be china banks or ch. I b and t and b..

Okay. You know i think in terms of preference again investors would prefer bdo bpi. Metrobank security bank. But then if these stocks become more expensive.

Then there might be a shift to china bank and p. And b. Because these two stocks are less liquid. And as such they are not usually part of the radar screen.

Normal radar screen of investors okay so now i d like to move over to some other stocks that have interest among our client. So one of them is is m. Okay. Just want to share that the latest run up was due to excitement over its victory or the wording of the third sell for license to to the miss litella booth.

Which of course includes is m. Okay. However you know i think that this is a cell on use type of stock because i think for the next. Few years is m.

Will you know being the third telco will still encounter difficulties. It will continue to lose money first before it will become profitable..

Because it will need to first spend on infrastructure and then second create scale or creates a big enough client base to become profitable and this might take several years and not to mention the valuation of the star. So we did a little bit of backward computation based on the market capitalization of i am currently the implied value of its telco operations. It s around two hundred ninety billion pesos pala. So just to put two hundred ninety billion pesos in in context.

It s same as the market capitalization of globe and also of pldt so it it implies that someday the third telco can be as big as pldt and globe. Which you know from from our experience in other countries. That usually is not the case usually when the third telco comes. In it s a niche player with the market share of maybe.

10 to 20 percent. So i think an implied valuation of 290 billion for the third telco license is a bit too much at this stage. So we feel like is ms. Is a little bit too expensive at this point.

When we came out to their power sector report. We shared how we re not really too keen about the power sector. Because there is currently an oversupply in terms of power generation capacity in the country which of course when we limit the ability of power generation companies to expand and also their ability to send power at the high price that said though we feel like f gen. You know we have a bio rating.

On fgn and what has changed recently allowing the share price to go up is first it was able to secure contracts for its power generation capacity. So it no longer has any power generation capacity that it will have to reprise in the near term..

Okay. The problem is if you have to reprise your power generation contracts during a time when there s an oversupply of course. The buyers will reprise you at a very low rate. Okay and recall that one of its subsidiaries edc.

Which is a geothermal power plant company they listed last year. So as such fgn became the only play only green energy after that and and finally it found a partner for its lng facility. So this reduces their is that it s gas plants would no longer operate come 2024 when the olympia becomes depleted aside from that the stock is attractively valued as it s trading at only seven point four times pe. So do we like the stock yes.

We do like the stuff. We just don t like the sector. So that ends our list of stock recommendations for 2019 and also i hope. I was able to answer you know the stuff that you have asked me to answer or you know ask me for my opinion of what i think and what i think thinks about it thank you very much you music.

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