Stocks to continue riding on higher earnings

by James A. Loyola, MB

The local stock market is seen to continue riding higher on positive corporate earnings reports as well as the firmer Peso although weak volume in past days call for caution.

“This week, the local market may extend its climb with anticipation of third quarter corporate earnings giving a boost to sentiment,” said Philstocks Research Manager Japhet Tantiangco. 

He added that, “The Peso’s position above the 58.00 per US Dollar level, if sustained may also strengthen the market’s positive momentum.” The local market has been on a positive momentum after touching its trough at 5,699.30 last October 3, 2022.

Tantiangco noted though that, “From October 3 to date, net value turnover has only been averaging P3.97 billion per day, below the year-to-date average of P5.99 billion, implying weak conviction in the market’s climb. Thus caution is still advised in our trades.”

This sentiment was also shared by 2TradeAsia.com which said that, “While the trek north of 6,000 was welcome, the market is left wanting of stronger impetus to carry it convincingly towards 6,500-6,700.” 

“Investors are also expected to look towards the S&P Global Philippines’ Manufacturing PMI, Inflation data, and foreign trade data for clues on the local economy,” said Tantiangco.

2TradeAsia.com said investor focus will be pulled in multiple directions, given macro events unfolding for the month.

“The US midterm elections on the 8th, while not groundbreaking, might cause some volatility especially if the US chambers split (i.e. delays in 2023 stimulus, etc.),” the brokerage said.

It added that, “On the 10th, third quarter GDP will be reported and, while expectations have been tempered (low to mid-6 percent), the print will give funds a bigger sense of the impact of policy tightening and will be a guide to better project the fourth quarter up to 2023.”

Meanwhile, 2TradeAsia.com said that, “in mid-November, another round of Fed rate hikes are anticipated (estimated at 75-bps); the BSP is expected to mirror the Fed on the 17th to protect the peso.” Thus, it advised investors to “Range-trade while funds seek inspiration, noting that intraday selling pressure makes settling for modest gains the more optimal play for now.”

For stock picks, Abacus Securities Corporation is looking at Puregold Price Club because “We are anticipating a stronger second half of 2022 for PGOLD with revenge spending and reopening theme still in play after consumers being locked in the pandemic for two years.” 

“We do acknowledge the challenges presented above (peso, inflation affecting consumer spending) which will eat into the company’s margins and profitability. However, we still expect numbers to remain strong and possibly go beyond management’s expectations of consolidated revenues growing 7 to 9 percent.” It added.

The brokerage noted that, “We also have mentioned prior our preference to remain defensive and be choosy in picking stocks. And PGOLD makes a case for this with the company’s resilience in its line of business on essentials and the stock currently trading at all-time low valuations… Accumulate.”

Abacus is also advising investors watch Wilcon Depot and buy its stock when the price weakens as it is one of the best performing index stocks since the start of 2020.

While its price-to-earnings ratio is the highest in the PSEi and it is the second most expensive home improvement play in the region, “Upgrades are imminent and this will help valuations but the stock will still be pricey.”

“We do believe the premium, especially over its regional peers, is partly justified by the very strong YTD results and expanding margins,’ said Abacus adding that, “we would prefer to wait for dips before buying.”

For its part, COL Financial said it is raising its fair value for Wilcon to P31.70 per share from P25.20 a share “as a result of the changes in our forecasts and after rolling over our estimates to 2023.”

“After factoring in our higher topline and gross margin assumptions, our net income forecasts for FY22 and FY23 increased by 6.2 percent and 6.0 percent, respectively,” it said but noted that, “Despite the upgrade in our estimates, we maintain our HOLD rating on the stock due to current valuations.”