Capital

Financial Adviser: 5 Best-Performing Speculative Stocks to Watch Out for This Year and How to Profit from Them

These are speculative stocks that are high-risk, high reward.
ILLUSTRATOR WARREN ESPEJO
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The stock market has been falling this year due to rising inflation and interest rates.

The PSE Index has already lost by over 1,000 points or 15.5 percent to date--from its high of 7,552 in February to 6,379 last week.

With the seemingly uncontrollable rise in inflation, there is no doubt that the stock market will continue to fall as interest rates go up.

The increase in trading liquidity as the stock market declined has increased demand for speculative stocks.

Also read: Financial Adviser: 5 High-Yield REIT Stocks to Fight Inflation and How to Profit from Them

Speculative stocks tend to appeal to retail traders because they offer huge potential return, but they can also be highly risky because of their uncertain prospects.

The stock market is speculating that these stocks will turnaround with the recovery in the economy, thereby generating higher returns in the future.

If you are the type of investor who doesn’t want to risk going into the unknown, investing in speculative stocks may not be for you. Trading speculative stocks is more than taking risks. You need to have the skills, patience and right mindset to speculate.

One way to manage your risk is to get to know the companies behind every speculative stock. When you know the fundamentals, you can assess how much risk you can afford based on market speculation.

Here are the five top speculative stocks that you can trade and how you can profit from it:

1| Philweb Corporation

Price: P3.55 

Year-to-date gain: +86.2 percent

Philweb Corporation (PSE: WEB) is one of the largest internet gaming providers in the country originally founded by tycoon Roberto Ongpin.

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In 2016, WEB ceased to become a service provider for PAGCOR’s Electronic Gaming Sites (PeGS) when its intellectual property license and management agreement was not renewed.

Ongpin sold 53.76 percent of his ownership in WEB that year to Gregorio Araneta III at 58 percent discount to market price for P2.60 per share or P2 billion.

Although WEB was able to get a provisional certificate of accreditation from PAGCOR in 2017, which effectively allowed the company to resume its operations, the number of sites that it services was limited.

WEB’s annual revenues have steadily declined from P1.6 billion in 2015 to P264 million in 2020, which resulted to accumulated losses of P814 million for the past five years.

Last year, as the economy slowly reopened, WEB’s total revenues recovered to P537 million, which helped lower its operating losses from P55 million in 2020 to P24.4 million in 2021.

WEB recently expanded its services with the acquisition of 16 e-Bingo outlets, increasing its total operating outlets to 22, and two e-Bingo suppliers, which are accredited suppliers to 75 e-Bingo outlets in the country.

WEB’s expansion should help the company to turnaround in the near future, as its total revenues and cash flows improve.

It is interesting to note that despite its losses for the past three years at very low total revenues, WEB’s operating cash flows have been positive.

In 2019, WEB generated positive operating cash flows of P40.6 billion. This increased to P51.0 billion in 2020 pandemic, and then to P393 billion in 2021.

WEB’s stock price has lost by 93.5 percent from a high of P28.5 in 2016 to as low as P1.86 percent last February. The stock has been actively trading lately, rising to as high as P4.45 per share last week.

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At the current share price of P3.55 per share, WEB is trading at 9.6 times Price-to-Sales ratio, which offers 59 percent discount to its five-year Price-to-Sales ratio average of 23.3 times. 

2| Araneta Properties, Inc

Price: P1.64

Year-to-date gain: +82.47 percent

Araneta Properties (PSE: ARA) is a real estate company with vast land holdings in San Jose Del Monte, Bulacan. The company currently has a joint venture with Sta. Lucia Real Estate and Development, subsidiary of Sta. Lucia Land (PSE: SLI) for development and marketing of its subdivision called Colinas Verdes.

Total sales of ARA for the past five years have been declining from P134.8 million in 2016 to P20.4 million in 2020, reflecting lower profitability from net income of P15.6 million in 2016 to net loss of P14.7 million.

Last year, ARA reported that its nine-month total sales recovered by 31.5 percent to P23.7 million from P18 million in the same period last year, but it still reported a net loss of P11.1 million, slightly which is lower than its losses of P14.5 million in 2020.

ARA has total land bank of 347.55 hectares, 89 percent of which is located in San Jose Del Monte, Bulacan. The total value of its landbank as of September last year was P1.2 billion.

At this value, ARA’s average acquisition cost per square meter is estimated at P350. With land development, ARA’s average selling price of lots could range from P7,500 to P13,000 per square meter.

If we assume the market value of ARA’s land bank at three times its estimated cost, which is P1,050, we can derive additional land value of P2.4 billion.

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The additional value of P2.4 billion, which translates to P1.23 per share plus current book of P89 per share, yields a total net asset value per share of P2.12.

ARA’s stock price has recently shot up to as high as P2.17 per share from a low of P1.00 few weeks ago, but the stock has since corrected to P1.64 per share.

At the current share price, the stock offers 22.6 percent discount to its net asset value. A correction in the stock back to P1.30 per share should afford a larger discount.

3| Prime Media Holdings, Inc

Price: P1.77 

Year-to-date gain: +60.68 percent

Prime Media Holdings (PSE: PRIM) is a dormant company majority owned and controlled by RYM Business Management Corporation. PRIM has not been operating since it was acquired via backdoor listing from Banco De Oro a few years ago. The company has been incurring losses, resulting to capital deficiency of P146.5 million to date.

Last year, PRIM, along with its controlling shareholder, RYM, entered into a Memorandum of Understanding with New Era Empire Realty Corp to pursue potential ventures into real estate development and gaming.  

PRIM also signed an agreement a Memorandum of Agreement to acquire the majority ownership of its sister company Philippine Collective Media Corporation (PCMC) via share swap.

PCMC is a subsidiary of RYM Business Management Corp that operates a television station under PRTV and 13 radio stations in Tacloban.

PRIM’s current share price at P1.77 per share is highly speculative as it has no earnings and book value reference. The company is expected to increase its authorized capital stock in the near future in order to accommodate the acquisition.

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The infusion of assets through acquisition of PCMC should provide a better basis for earnings and valuation in the future.

4| Benguet Corporation

Price: P7.30 

Year-to-date gain: +37.27 percent

Benguet Corporation (PSE: BC) is the oldest mining company in the Philippines that has been operating for over 118 years.

BC’s total revenues have been growing strongly for the past three years driven by rising prices of gold and nickel in the global market.

In 2020, BC’s total revenues more than doubled to P1.6 billion from P802 million in 2019 due to increased revenues from gold and nickel deliveries.

The increase in total revenues more than tripled BC’s net income to P381 million in 2020 from P115 million in 2019.

Last year, the continued rise in gold and nickel prices and increased nickel production by BC more than doubled its total revenues again to P3.8 billion from P1.6 billion in 2020.

Nickel revenues, which more than tripled from P818 million in 2020 to P2.7 billion last year, comprised about 73 percent of BC’s total mining revenues.

The strong rise in revenues boosted BC’s net income to increase by more than 200 percent to P1.4 billion from P381 million in the previous year.

At BC’s latest earnings of P1.4 billion, the stock is trading only at 3.2 times Price-to-Earnings (P/E) ratio, which is 60 percent cheaper than the average P/E ratios of other nickel mining companies in the Philippine Stock Exchange.

BC’s share price is also trading at slightly lower than its book value of P7.76 per share. BC’s Price-to-Book Value (P/BV) is 0.94 while its BCB’s P/BV is 0.95, which is 50 percent lower than average P/BV ratio of the nickel mining sector.

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The current global crisis brought about by war in Ukraine should keep prices of nickel and gold high, which will support BC’s revenue and earnings growth outlook this year.

5| Marcventures Holdings, Inc

Price: P1.68 

Year-to-date gain: +35.90 percent

Marcventures Holdings (PSE: MARC) is a nickel ore mining company tat exports 100 percent of its production to China. MARC holds mineral production sharing agreements that collectively cover a total of 21,872 hectares in Surigao Del Sur and the province of Samar through its four operating subsidiaries.

MARC’s total revenues have been growing by an average of 15 percent per year for the past 10 years, from P842 million in 2011 to P2.8 billion in 2020.

This steady revenue growth increased MARC’s net income by an average of seven percent per year from P209 million in 2011 to P375 million in 2020.

Last year, higher global prices of nickel and production increased MARC’s total revenues by 35 percent to P3.9 billion from P2.9 billion in 2020. The surge in revenues doubled MARC’s net income to P756 million from P375 million in 2020.

The stock of MARC has been rising since December last year from P1.05 per share to as high as P2.16 per share early this year, but it has since corrected to P1.59 per share.

Based on MARC’s 12-month trailing net income of P756 million, the stock is only trading at 6.7 times PE ratio against the sector’s average of 12 times.

If demand for nickel continues to be high, MARC should be able to sustain its earnings growth momentum this year and double its stock price to P3.40 per share at 12 times PE ratio.

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MARC also declared special dividend last year at P0.13 per share, which gives the stock an 8.1 percent dividend yield. The last time MARC paid dividends was in 2014 at P0.30 per share when it earned a net income of P841 million.

Assuming it will pay the same amount of P0.30 per share this year, this should give MARC a prospective dividend yield of 18.9 percent and further support the stock.

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