Financial Adviser: 5 Worst-Performing Stocks in the PSE this 2022 and How to Profit from Them
Contrarians love to say that when you buy stocks that are battered and out-of-favor, there is a good chance that you can make money over the long-term.
The fall in the stock market this year has resulted in a significant decline in stock prices. Out of the 358 listed-companies in the Philippine Stock Exchange (PSE), more than two-thirds or 67 percent have negative year-to-date returns.
Although the stock market has been recovering lately with the PSE Index rising by 19.5 percent from a low of 5,699 in October to as high as 6,814 last week, investors sentiment continues to be uncertain.
Fears of rising inflation increases interest rate expectations, which could raise market risks and lower stock price valuations.
The 10-year Philippine bond yield, which has recently corrected from a high of 7.7 percent to 6.9 percent, may start to pick up again if inflation increased in November.
The PSE Index could fall to as low as 6,100 level given the market uncertainties.
While most stocks nowadays may have fallen significantly, there is no assurance that a sustainable recovery is underway. In fact, share prices may fall further with the prevailing market pessimism.
It may probably take some time before the market finally recovers. In the meantime, current weakness in the stock market should provide opportunity for investors to find and accumulate potential value stocks.
Stocks that have tumbled the most could offer the highest potential of providing huge returns when they recover, although not all badly beaten stocks will recover fast.
Let’s take a look at the five biggest losers in the stock market today and let’s analyze where you can possibly pick them up:
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1| AllHome Corp.
Year-to-Date Loss: -80.1 percent
AllHome Corporation (PSE: HOME) is one of the largest home improvement retailers in the country with 57 stores or an aggregate net selling space of over 297,000 square meters.
HOME, which was listed in late 2019 at an IPO price of P11.50 per share, is majority-owned and controlled by the group of business tycoon and former Senate President Manny Villar.
HOME’s total revenues have been growing by an average of 26 percent per year from P7.2 billion in 2018 to P14.3 billion in 2021. This growth has translated to an average growth in earnings by 41 percent year from P511 million in 2018 to P1.4 billion in 2021.
This year, HOME’s total revenues for the first nine months went down by 10 percent to P9.1 billion from P10.1 billion in the same period last year, apparently due to the closure of its Alabang outlet, which was damaged by fire accident early this year.
The loss in revenues resulted to a 20 percent decline in operating income to P1.2 billion from P1.5 billion in 2021.
With finance cost of P297 million and one-time loss from fire of P303 million, HOME’s net income fell by 59 percent to P398 million from P972 million last year.
The fall in net income mirrored the collapse in the stock price, which decreased 80.1 percent so far this year. Current share price of HOME at P1.67 per share also represents 85.4 percent loss from its IPO price of P11.50 per share.
HOME’s 12-month trailing Price-to-Earnings (PE) ratio is 7.2 times, which is a 67 percent discount to its average PE in 2021 at 21.78 times.
However, if we remove the one-time loss of P303 million, HOME’s 12-month trailing PE would have been lower at 5.3 times.
The stock is also trading at 58 percent discount to its book value per share of P4.00.
HOME has also declared that it is paying cash dividend of P0.077 per share this year, which is 46 percent higher than the dividend it paid last year at P0.0527 per share.
At P0.077 per share cash dividend, HOME’s dividend yield stands at an attractive rate of 4.6 percent.
Now, if we will price the stock based on its current assets minus all its debts, we can derive a net-net value per share of P1.42 per share.
This means that at P1.42 per share, we will be paying HOME for its net current assets only and taking all its fixed assets for free.
Current share price of HOME is trading at 17 percent premium of its net-net value per share. Further weakness in the stock towards the P1.40 area should offer a good value investing opportunity.
2| Apollo Global Capital, Inc
Year-to-date loss: - 66.2 percent
Apollo Global Capital, Inc. (PSE: APL) was known as Yehey! Corporation, an internet-based company that offers online advertising services before it was converted into a holding company.
In late 2020, APL’s 90 percent-owned subsidiary, JDVC Resources Corporation announced that it would start extraction of magnetite iron reserves in the seabed off Cagayan in partnership with Choi Garden owner and entrepreneur Frank Lao.
Lao at that time was reported to have contributed two deep-sea mining vessels with a net capacity of 10,000 tons per day.
APL even secured an Export Packing Credit Line from the Development Bank of the Philippines of up to $8 million, which was to be used as standby financing for its working capital requirements.
APL was one of the top performing stocks during the pandemic, gaining over 197 percent by end of 2020. The strong buying momentum supported the stock’s further rise in January 2021, which went up by 69 percent before it peaked at P0.475 per share.
Since its announcement in 2020, APL has yet to start mining operations.
Last year, APL raised P988 million from follow-on offering by issuing 12.35 billion shares at offer price of P0.08 per share.
APL used P711.9 million of the proceeds to acquire 49 percent equity ownership in Poet Blue Ocean, which contributed a non-cash accounting equity earnings of P97.7 million.
Without commercial operations, APL has been incurring losses. This year, the company reported its nine-month net loss of P58 million and its total cash reserve is down to P100.7 million.
APL’s stock price has lost by as much as 93.8 percent from its all-time high in 2021 to only P0.027 per share. Interestingly, the current share price of APL is even lower than the average P0.037 per share from its dormant years prior to the hype in 2020.
Although the stock price is at its all-time low, there is no assurance that it will recover soon given APL’s recent track record with investors.
3| ACE Enexor, Inc.
Year-to-date loss: -62.1 percent
ACE Enexor, Inc (PSE: ACEX) was formerly known as PHINMA Petroleum and Geothermal, Inc before it became 75.92 percent subsidiary of AC Energy (PSE: ACEN) of the Ayala Group.
ACEX’s primary business is the exploration and production of crude oil and natural gas through interests in petroleum contracts and holdings in resource development companies.
ACEX has no commercial operations yet. The company has been incurring losses through these years. For the first nine-months of this year, ACEX incurred net loss of P47 million, 49 percent higher than its net loss of P31.8 million in the same period last year.
ACEX has current assets of only P14.6 million against current liabilities of P211.7 million. The company also has cumulative deficit of P280 million that is higher than its capital stock of P250 million.
ACEX is highly speculative, but unlike APL, the company is backed by a large conglomerate with a solid financial track record. The company will need a serious capital restructuring in the future. This will likely involve fundraising via issuance of new shares.
APL’s stock price has lost as much as 82 percent from its all-time high of P43 per share in 2021 to as low as P7.70 per share this year.
Further weakness in the stock towards P4.00 area should be a good price to accumulate for future action.
4| AllDay Marts, Inc.
Year-to-date loss: -59.3 percent
AllDay Marts, Inc (PSE: ALLDY) is the leading mid-premium supermarket operator in the country, primarily serving the upper income market with a total of 34 operating stores to date.
ALLDY is majority owned and controlled by the group of Manny Villar through the investment holding company AllValue Holdings Corporation.
AllValue Holdings owns the retail businesses of the Villar group that includes AllHome Corp (PSE:HOME), AllToys, AllSports, AllBikes, AllDay Convenience, AllDay Rx, Coffee Project, Bake My Day, Finds, and other concept stores that are primarily located in sister company Vista Malls.
ALLDY’s total revenues have been growing by an average of 46 percent every year from P3.0 billion in 2018 to P9.45 billion in 2021. This growth in revenues enabled the company to increase its net income by 88 percent per year, from P57.8 million in 2018 to P386 million in 2021.
This year, ALLDY’s total revenues for the first nine months of the year grew by 2.8 percent to P7.0 billion from P6.8 billion in the same period last year.
However, its net income fell by 62.2 percent to P100 million from P265 million last year due to the damage caused by fire accident in its Alabang outlet.
Similar to its affiliate HOME, ALLDY’s stock price also mirrored the fall in its net income.
ALLDY, which listed only last year at an IPO price of P0.60 per share, has lost as much as 88 percent from its all-time high at P1.10 per share.
ALLDY’s 12-month trailing earnings is P221 million, but without the one-time loss from fire damage, total earnings should be P391 million.
To price the stock at today’s market capitalization, ALLDY will have PE ratio of 14.4 times. This is relatively expensive given that it is 27.6 percent higher than the market leader, Puregold (PSE: PGOLD) which has a PE of 11.2 times.
If ALLDY’s PE ratio were to equal PGOLD at 11.2 times, ALLDY’s stock price must fall further by 22.2 percent to P0.19 per share.
But to price this competitively, ALLDY’s PE ratio must trade at discount of PGOLD. Let’s say we will price ALLDY at 25 percent discount of PGOLD’s PE, then the stock must trade at 8.4 PE ratio.
At 8.4 PE, ALLDY’s share price must fall further by 41.6 percent to P0.145 per share.
5| Vista Land and Lifescapes, Inc.
Year-to-date loss: -58.64 percent
Vista Land and Lifescapes, Inc. (PSE: VLL) is one of the leading integrated property developers in the country and the largest homebuilder that is focused on the affordable market segment.
VLL, which is also majority owned and controlled by the group of Manny Villar, operates its residential and commercial property development through its business units, namely Camella Homes, Crown Asia, Britanny, Vista Residences and Vistamalls, formerly known as Starmalls, developer and operator of retail malls.
VLL’s total revenues and earnings have been declining since 2018. Its total revenues have decreased 26 percent from P40.2 billion in 2018 to P29.6 billion in 2021, while net income has fallen by 37 percent from P10.2 billion in 2018 to P6.4 billion in 2021.
One of the key contributors for the decline in VLL’s total revenues was its real estate, whose revenues have significantly decreased by 45 percent from P31.8 billion in 2018 to P17.4 billion.
VLL’s real estate business used to contribute about 77 percent of its total revenues but today, its contribution is 50.5 percent of the total.
This year, VLL’s total revenues for the first nine months continued to fall, losing 5.1 percent to P21.2 billion from P22.4 billion in the same period last year.
VLL’s net income, however, improved by 11.6 percent to P6.7 billion from P5.9 billion last year due to lower operating costs and higher gross margins.
VLL has total debt of P152 billion as of September 2022 compared to its total equity of P119 billion for debt-to-equity ratio of 1.27 times.
The fall in VLL’s revenues and earnings must have already been reflected in its stock price, which has steadily declined since 2019 from a high of P8.00 per share to P1.46 per share today.
At today’s price, VLL’s 12-month trailing PE ratio is only 2.7 times, which is extremely low. VLL’s average PE ratio last year was 6.97 times.
VLL is also trading at a huge 84 percent discount to its book value of P9.1 per share. VLL’s current share price at P1.46, which is also its all-time low, represents only 16 percent of its book value.
Further weakness in the stock towards P1.00 or lower should offer great opportunity to accumulate for value investing.
Henry Ong, RFP, is an entrepreneur, financial planning advocate and business advisor. Email Henry for business advice [email protected] or follow him on Twitter @henryong888