Financial Adviser: 5 Worst Performing Blue Chip Stocks in 1Q 2022 and How to Profit from Them

Contrarians love to say that there is a good chance you can make big money when you do what others don’t, but it’s not always easy to buy stocks when the rest of the world is selling.

The PSE Index has so far lost 5.64 percent since the start of the year and may lose some more in the coming weeks towards 6,000-level as inflation and interest rates continue to escalate.

Global tensions brought about by the ongoing war between Ukraine and Russia has caused prices of oil and commodities to go up, increasing inflation to go up last month to a six-month high of 4.0 percent.

Fears of rising prices due to the reopening of the economy have increased interest rate expectations with the 10-year Philippine bond yield rising to a two-year high at 6.05 percent from 4.0 percent in January.

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 have 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 Philippine Stock Exchange (PSE) Index losers to date and where you can possibly pick them up:

1| AC Energy Corp

Price: P7.40  

Year-to-Date Loss: -32.7 percent 

AC Energy (PSE: ACEN) is one of the largest listed renewable energy companies in Southeast Asia with total net attributable capacity of 3,750 MW.

About 40 percent of its total capacity is contributed by its operation in the Philippines and balance of the 60 percent are shared by Vietnam, Indonesia, India, and Australia.

ACEN, which sources its renewable energy mainly from solar and wind power, currently operates about 68 percent of its total capacity, while 32 percent are still under construction.

Last year, ACEN’s total revenues grew 27 percent, from P20.5 billion in 2020 to P26.1 billion in 2021. The increase in revenues boosted its total net income by 22 percent to P5.3 billion from P4.3 billion in 2020, due to higher earnings contribution from its international operations.

By comparing ACEN’s latest 12-month net income of P5.3 billion against its current market capitalization of P283 billion, the stock is trading at a very high Price-to-Earnings (P/E) ratio of 54 times, three times more expensive than the current market P/E of 16.7 times.

Even if we compare ACEN’s current Enterprise Value of P328 billion against its reported EBITDA of P11.7 billion, the stock’s EV/EBITDA of 27.9 times still comes out expensive, which represents almost twice the average EV/EBITDA ratios of global renewable companies at 15.7 times.

A further rise in interest rates will continue to overvalue ACEN, which could pressure the stock to fall at a lower price.

Assuming ACEN’s net income increases by 50 percent this year to P7.9 billion and its P/E ratio corrects to a more reasonable level at half its current pricing at 27 times, we can pick up the stock at P5.60 per share level.

2| Globe Telecoms, Inc

Price: P2,274

Year-to-Date Loss: -31.55 percent 

Globe Telecoms (PSE: GLO) is the leading telecommunications and technology provider in the country with 86.8 million mobile subscribers, 3.7 million home broadband customers, and close to 1.3 million landline subscribers. About 51.5 percent of GLO’s revenues comes from mobile data, 19.4 percent from home broadband, and the 20.7 percent from mobile and fixed line voice.

Last year, GLO’s total revenues grew 4.0 percent to P167.7 billion from P160.5 billion in 2020, but operating income margins declined from 15.8 percent in 2020 to 13.7 percent due to higher general and administrative expenses and financing costs.

Despite the lower operating income, GLO booked a one-time gain of P4.3 billion, resulting from the dilution of its ownership in Mynt, the operator of GCash.

The one time-gain enabled GLO’s net income to increase 27 percent from P18.6 billion in 2020 to P23.7 billion in 2021. But without it, GLO’s income before income tax would have declined by 8.8 percent.

GLO is currently trading at only 12.8 times P/E ratio, cheaper than PLDT (PSE: TEL)’s P/E of 17.2 times.

Last year, GLO paid a total of P108 per share in cash dividends. Assuming it pays the same dividends this year, GLO’s expected dividend yield at current share price is 4.7 percent.

Further weakness in the share price should offer good opportunity to accumulate the stock. If we target dividend yield of 5.0 percent for GLO, a good price to buy should be somewhere at P2,156 per share level.

3| Universal Robina Corp

Price: P104.80

Year-to-date loss: -18.1 percent

Universal Robina (PSE: URC) is one of the largest branded food product companies in the Philippines, being a dominant player with leading market shares in snacks, candies, chocolates, and biscuits. Some of URC’s popular consumer brands are Jack n’ Jill’s Chippy, Piattos, Magic Flakes, Maxx, C2, Blend 45, Great Taste, Swiss Miss, and Vitasoy. 

URC recently acquired Munchy’s, one of the leading players in the Biscuits category in Malaysia known for its well-loved brands such as Munchy’s Cream Crackers, Lexus Cream Sandwich, Muzic Wafer, and Choc-O Cookies.

URC’s branded consumer food products contribute about 71.4 percent of its total sales, while its international operations contributed about 19 percent of total.

Last year, URC’s total sales grew by 3.3 percent from P113 billion in 2020 to P116.9 billion, but gross profit margins declined from 30.6 percent in 2020 to 28.6 percent due to higher input costs. Lower gross profit margins brought down total operating income by 8.5 percent to P12.7 billion from P13.9 billion in 2020, but URC was able to book one-time gain of P11.3 billion from the sale of its URC Oceania in Australia to Intersnack group.

As a result, URC’s net income in 2021 at P24.2 billion more than doubled its net income of P11.6 billion in 2020.

This year, rise in inflation may cause URC’s cost inputs to increase, which may significantly affect its profitability as a result of lower gross margins.

A 1.0 percent increase in URC’s cost of sales can translate to P1.2 billion loss in gross profits, which roughly represents about 10 percent of its net income. Based on a 12-month trailing net income of URC against its current market capitalization, the stock is trading at a P/E ratio of 18.1 times, which is still relatively high compared to market average.

URC must hold at its recent historical low at P100 per share, which it will be testing soon, but looking at its current valuation, given the rise in costs and lower profitability, there is a possibility that the stock may break down.

A break down could send URC to as low as P80 per share. At this projected price, the stock will be good for picking as its P/E ratio falls to an attractive level at 12 times. 

4| Monde Nissin Corp

Price: P13.40

Year-to-date loss: -17.3 percent

Monde Nissin (PSE: MONDE) is the country’s largest noodle and biscuit manufacturer. For over 40 years, the company has built a portfolio of top brands such as Lucky Me!, SkyFlakes, Fita, M.Y. San Grahams, Nissin, Mama Sita’s and Dutch Mill.

In 2020, MONDE’s iconic brand, Lucky Me! dominated the instant noodle market with 68 percent market share, while Dutch Mill brand controlled the yogurt drinks market with 73.2 percent.

MONDE’s other market-leading brands such as SkyFlakes and Fita are number one in the biscuit market with 30.5 percent market share, while Mama Sita’s leads in oyster sauce brands with 56 percent market share.

MONDE also owns Marlows Food Limited in UK, one of the largest manufacturers of meat alternative products in the world. Its brand Quorn Foods is the market leader in meat alternative market in the UK with 28 percent market share.

Last year, MONDE’s total sales grew by 2.0 percent from P67.9 billion in 2020 to P69.3 billion, but just like URC, gross profit margins declined from 39 percent in 2020 to 36.9 percent due to higher commodity prices.

MONDE’s core income, as a result, fell by 7.4 percent from P9.4 billion in 2020 to P8.3 billion. Unlike URC, which booked a one-time gain, MONDE booked a one-time loss of P5.1 billion arising from its redemption of convertible notes to Arran Investments.

Because of this, MONDE’s net income fell by 60.5 percent from P8.0 billion in 2020 to P3.2 billion.

Given MONDE’s 12-month trailing net income without the one-time loss at P8.1 billion against its market capitalization, the stock is trading at relatively high P/E ratio of 29.4 times.

MONDE must hold at its historical low at P12.62 per share, but given its high P/E pricing and negative prospects of rising inflation on its profitability this year, the stock may not be able to hold on to this support.

A break down below P12.62 could send MONDE somewhere below P10 peso level, where its P/E ratio would become more reasonable.

5| Puregold Price Club

Price: P33.00

Year-to-date loss: -16.5 percent 

Puregold Price Club (PSE: PGOLD) is the largest supermarket company in the Philippines with a total of about 550,000 square meters of net selling area or 430 stores strategically located all over the country.

About 77 percent of PGOLD’s revenues comes from its Puregold supermarket chains while the balance of 23 percent from S&R membership shopping.

PGOLD disclosed recently that its total net income for 2021 grew by 1.4 percent from P8.07 billion to P8.2 billion. Average gross profit was 18 percent, higher than 15.5 percent in 2020.

Based on PGOLD’s latest 12-month net income, the stock is trading only at 11 times P/E ratio, which is comparatively low compared to its historical average of 16.9 times P/E.

Risk of rising inflation will mean lower sales growth for PGOLD in the short-term because higher prices of grocery items may slow down consumer spending.

But over the long-term, supermarket retailing has been regarded as a recession-proof business because demand for grocery items has historically endured past economic recessions.

PGOLD must hold at its historical support at P31.50 level, but poor market sentiment may push the stock to break its support, which could send the stock testing its 2020 pandemic low at P26.00 per share.

At this price, PGOLD would be offering a very attractive pricing of only 9.1 times P/E ratio that warrants a good buy. 

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