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Financial Adviser: 5 Biggest Blue-Chip Losers in 2019 and How to Profit from Them

In an investment climate like this where anything can happen, it is important that you are aware of the opportunities in the market.
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There is a contrarian saying that it is good to buy when everyone wants to sell and sell when everyone wants to buy.

Market psychology dictates that investors tend to overpay stocks when everyone is positive about the future of the company and the economy.

But when sentiments start to turn negative because of uncertainties, investors tend to overreact and sell stocks below their fair values.

The PSE Index has been on a downtrend the past few weeks, losing almost 500 points from a high of 8,216 in November to a low of 7,720 this month.

Although the market has rallied recently, there is still no clear signal that the trend has reversed as outlook remains uncertain.

While most stocks nowadays may look cheap compared to share prices in January last year, prevailing market pessimism may continue to drag share prices lower in the coming weeks.

In an investment climate like this where anything can happen, it's important that you are aware of the opportunities in the market. This may be the best time to get to know the stocks that may offer good value potential in the future.

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Stocks that offer the highest potential for returns are those that are most badly beaten. However, not all stocks that have lost so much are first to recover.

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Here are the top five biggest blue-chip losers from the PSE Index and its value investing opportunities that these stocks offer:

1| DMCI Holdings, Inc

Stock Price: P5.55

Year-to-loss: -56.64 percent

DMCI Holdings, Inc. (PSE:DMC) is one of the largest conglomerates in the country with interests in power, construction, property development and water distribution.

DMC’s 56.6 percent-owned, listed-company Semirara Mining and Power Corp (PSE:SCC) contributes about 50 percent of the company’s total net income.

DMC’s wholly owned subsidiary, DMCI Property Developers, shares about 20 percent while DMC’s 25 percent interest in Maynilad Water Holdings provides about 16 percent, making up a total of 86 percent.

Interestingly, DMC’s construction company, D.M Consunji, Inc, whose engineering expertise the company was originally known for, contributes only less than 10 percent.

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For the first nine months of the year, DMC reported that its net income fell by 11 percent to P9.3 billion from P10.4 billion last year, despite a 10 percent increase in total revenues, due to lower prices of coal and higher financing costs.

The stock of DMC has been on a downtrend for over two years now. It fell further recently after it was removed from Morgan Stanley Capital International (MSCI) Philippine Index.

DMC was also heavily beaten by the market last week due to controversy over the possible cancellation of Maynilad’s water concessionaire contract with the government.

DMC is currently trading at a nine-year low, having lost as much as 70 percent from a high of P16.70 in September 2017.

Current share price of the stock offers 10 percent discount to its latest book value per share and one of the cheapest blue-chips in the market with Price-to-Earnings (PE) ratio of only 5.9x.

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2| Metro Pacific Investments Corp

Stock Price: P3.01

Year-to-Date Loss: -34.71 percent 

Metro Pacific Investments (PSE: MPI) is a leading infrastructure holding company in the Philippines. It owns and develops a diverse set of infrastructure assets through its investments in water, toll roads, power generation and distribution, healthcare services, light rail and logistics.

Some of the assets that MPI owns are Maynilad (52.8 percent), NLEX Corp (75.6 percent), Meralco (26.2 percent), Metro Pacific Hospital Holdings that owns 13 hospitals with 2,900 beds, and Light Rail Manila Holdings (51 percent).

About 45 percent of its revenues come from water and sewerage services, 26 percent from toll fees, 20 percent from hospitals and the balance from other assets.

MPI’s net income has been growing by an average of 39 percent per year for the last 10 years, from P525 million in 2008 to P14.1 billion last year, on the back of robust revenue growth, which grew 32 percent annually to P83 billion.

This year, MPI reported that net income for the first nine months fell by 5.4 percent to P11.8 billion from P12.5 billion in the same period last year, despite an 8.6 percent increase in revenues, due to higher financing costs.

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Similar to DMC, MPI was also heavily sold by the market due to Maynilad’s water concession controversy. The stock has lost more than 50 percent from its 52-week high of P5.28 per share to date.

MPI is currently trading at 48 percent discount to its book value of P5.72 per share with a Price-to-Earnings ratio of only 7x.

Further weakness may send the stock to its key support at P2.22.

3| LT Group, Inc.

Stock Price: Php11.90

Year-to-Date Loss: -28.23 percent

LT Group (PSE: LTG) is the holding company of the business tycoon Lucio Tan that owns 100 percent of Tanduay, the third-largest distilled spirits producer in the country with 25-percent market share, and 100 percent of Asia Brewery Incorporated.

LTG also owns an indirect stake of 49.6 percent of Philip Morris Fortune Tobacco, the leading tobacco manufacturer, with 67-percent market share; 56.5 percent in Philippine National Bank (PNB) and 100 percent of Eton Properties.

LTG’s total revenues, about half of which comes from PNB and the balance from Tanduay and Asia Brewery, have been growing by 24 percent annually for the past 10 years, from P9 billion in 2008 to P75 billion last year.

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This growth in revenues translated to 47 percent annual growth in net income to P16 billion from only P338 million in 2008.

This year, LTG reported that its net income for the first nine months increased by 39.8 percent to P17.6 billion from P12.6 billion last year as total revenues grew by 26 percent to P68.8 billion.

But despite the growth in earnings, share price of LTG continues to fall. The stock of LTG has already lost 56.5 percent from its high of P25.30 per share since January 2018.

LTG is currently trading at 28 percent discount to its book value of P16.50 and has a Price-to-Earnings (PE) ratio of only 7x, making it one of the most undervalued conglomerate stocks in the market.

4| Jollibee Foods Corp.

Stock Price: P221.20

Price Loss: -24.25 percent

Jollibee Foods Corp (PSE: JFC) is the largest fast-food chain in the Philippines, with a total of 3,238 restaurant outlets nationwide, a bulk of which comes from the Jollibee brand (1,174 outlets), Chowking (602 outlets) and Mang Inasal (586 outlets).

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JFC is also emerging as a top global player in the food and beverage industry with its recent acquisitions of Coffee Bean and Tea Leaf and US-based Smashburger, which increased its total outlets overseas to over 2,600 to date.

The total revenues of JFC have increased by more than three times from its revenues 10 years ago. JFC’s revenues have grown by an average of 14 percent per annum, from P43.4 billion in 2008 to P161 billion in 2018. This rise in revenues almost quadrupled its net income base from P2.3 billion in 2008 to P8.3 billion in 2018.

This year, JFC reported that its net income for the first nine months fell by 25.5 percent to P4.5 billion from P6.0 billion last year, despite an 8.8 percent increase in total revenues, due to restructuring losses from Smashburger and foreign exchange shortfalls.

Share price of JFC has fallen by a much as 43 percent from its 52-week high of P328.4 to a low of P184.1.

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Although the stock has rallied by 21 percent to P223 recently on low volume turnover, concerns about the company’s ability to turnaround its latest acquisitions to a profitable path still linger.

A continuation of the stock’s downtrend towards P180 level offers a good opportunity to invest for the long-term.

5| Manila Electric Company

Stock Price: P318

Price Loss: -17.32 percent

Manila Electric Company (PSE: MER), also known as Meralco, is the country’s largest electric power distributor with a franchise area covering 6.4 million customer accounts in 36 cities and 75 municipalities.

A virtual monopoly, MER’s combined revenue turnover of the business establishments that the company serves contribute more than 50 percent of the country’s Gross Domestic Product (GDP).

Meralco has consistently grown its revenues by an average of six percent per year over the last 20 years, from P85 billion in 1998 to P304 billion in 2018.

This steady growth in revenues translated to a seven percent annual growth rate from P5.0 billion in 1998 to P23 billion in 2018.

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However, this year, Meralco reported its net profit for the first nine months grew by only 0.6 percent to P18.3 billion despite a six-percent increase in total revenues.

Because of this, the stock of MER has fallen by as much as 22 percent from its 52-week high of P398 last January to a low of P310 per share.

Current share price of MER offers not only opportunity for capital appreciation when the stock recovers soon but also high dividend yield at five percent.

Meralco is one of the most reliable dividend payers in the market. The company pays out about 70 percent of its annual profits every year and has not missed a single year paying dividends for the last 25 years.

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Henry Ong
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