Financial Adviser: 5 Best Performing Stocks in 2020 That Gained Up to 600% in One Year
It has been a challenging year for the Philippine stock market as the PSE Index succumbed to its biggest loss in history, due to the outbreak of coronavirus pandemic.
The stock market lost as much as 47 percent last March when the PSE Index fell to a nine-year low of 4,039 from 7,742 at the start of the year.
But the market quickly bottomed out despite lingering uncertainties, recovering 80 percent of the losses to end the year at 7,122 level.
Although it may take some time before this crisis finally comes to an end, the market appears to be optimistic about the prospects of an economic recovery next year.
So far, only 10 of the 30 big cap stocks belonging to the PSE Index are expected to end the year on a positive note led by Emperador (PSE: EMP) with 38.5 percent followed by PLDT (PSE: TEL), 34.8 percent; Metro Pacific Investments (PSE: MPI), 27.1 percent and First Gen Corp (PSE: FGEN), 25 percent.
The rest of the blue chips are still going to end with losses. The top five biggest losers in this group are BDO Unibank (PSE: BDO), -32.1 percent; GT Capital (PSE: GTCAP), -32 percent; Robinsons Land (PSE: RLC), -28.4 percent; Security Bank (PSE: SECB), -27.4 percent and Metropolitan Bank (PSE: MBT), -24 percent.
More than the PSE Index stocks, most of the stocks that have risen this year despite the poor market sentiment were the small and mid-cap stocks.
As an investor, if you are looking to invest in safer stocks, it would be good to put your money among the PSE index stocks that have underperformed this year.
But if you are looking for higher returns with expectations of higher market volatility, you need to take more risks by investing in riskier, non-index stocks.
What stocks were the biggest gainers this year? How risky are these stocks? Do they have emerging fundamental value that may be worth looking at next year?
Here are the top five biggest stock market winners in 2020:
1| MerryMart Consumer Corp
Year-to-date Gain: +441 percent
MerryMart Consumer Corp (PSE: MM) braved the widespread fear of market depression last June to become the most successful initial public offering (IPO) in history.
MM’s share price rose by as much as 670 percent at P6.70 per share from its one peso offer price before it corrected to its current share price at P5.91.
For the first nine months of this year, MM reported that its total revenues increased by 28.3 percent to P2.4 billion from P1.9 billion in the same period last year.
The increase in total revenues saw significant improvement in MM’s gross profit margins which almost doubled from 4.6 percent last year to 8.8 percent this year.
The higher gross profits, however, were offset by the higher operating expenses, which increased as a percentage of sales to 7.6 percent from only 3.7 percent last year.
The higher operating expenses were attributable to the opening of new stores and ramping up of head office expenses to support MM’s expansion next year.
Despite the increase in expenses, total net income of MM still managed to grow by 26.4 percent to P14.5 million from P11.5 million last year.
MM should be able to book higher net income next year with the full year operations of its 18 outlets not to the mention aggressive opening of more stores.
Last June, we discussed in the article Financial Adviser: 5 Things Every Investor Needs to Know About Injap Sia’s MerryMart’s IPO that the intrinsic value of the stock is P7.14 per share, which the stock almost achieved recently when it hit a high of P6.70 per share.
The current share price of MM at P5.91 per share still offers a good upside of 17 percent to its intrinsic value, but we also assumed that the valuation was based only on 30 outlets using P30,000 per square meter.
With expansion next year, MM should easily surpass this hurdle to achieve its target of 100 outlets by the end of 2021. Higher number of outlets should mean higher valuation.
2| AC Energy Philippines, Inc
Year-to-date: +250.2 percent
AC Energy Philippines (PSE: ACEN) was a product of backdoor listing when the Ayala group acquired majority control of Phinma Energy for its power-related projects.
Through share swap transactions, the Ayala group infused a collection of its power-related companies worth P14.6 billion into the ACEN in exchange for new shares.
The subscription of new shares increased Ayala group’s equity control of ACEN from 68 percent to 82.6 percent. The acquisition of power-related companies by ACEN doubled the company’s total output for the first nine months of this year from 853 GWH to 1,610 GWH.
This increase in production helped ACEN to turnaround from a loss of P280 million last year to P2.9 billion this year.
Assuming the company will end the year with net income of P3.9 billion, ACEN’s projected valuation at current price of P8.02 per shall be 28x Price-to-Earnings (PE) ratio, which makes the company relatively fairly valued.
Moreover, if we price the company using EBITDA based on its latest financials, ACEN’s Enterprise Value-to-EBITDA stands at 21 times, which is comparatively high against market average.
Also, even if we annualize its EBITDA for the year, its EV-to-EBITDA will still come out expensive at 16 times.
ACEN is planning to raise fresh capital amounting to P5.4 billion by conducting a Stock Rights Offering (SRO) of 2.27 billon shares at offer price of P2.37 per share, or 68 percent discount to current share price.
Given the current pricing and the prospective stock rights offer, further upside may be limited as profit taking pressure increases.
3| MRC Allied, Inc.
Year-to-date: +204.8 percent
MRC Allied, Inc (PSE: MRC) is a holding company that has interests in property development, mining exploration, and renewable power generation in the Philippines.
MRC has been losing almost consistently for the last 10 years since 2010 due to lack of solid revenues. The company’s retained deficits for have ballooned to P648 million last year from negative P138 million in 2013.
The stock has been falling from its historical high of P0.94 in 2018 to a low at P0.105 per share last March, but it has since recovered rising strongly to as high as P0.72 per share early this month.
The rise could be due to the announcement by the company that it is acquiring majority control of Kerberus Corporation, a cybersecurity services company in a partnership with SG Security, a fast-growing, technology solutions provider.
The acquisition will allow MRC to offer Wifi and internet services to the public since the company, Kerberus Corp, has a Value-Added Service License from the National Telecommunications Commission.
MRC will have 120 days to finalize the transaction, which involves acquisition of at least 75 percent of the company at P250 million.
Given MRC’s cash of only P1.9 million and total liabilities of P934 million, it will have to do some capital raising in the next three months to acquire the company.
With the stock price trading near its historical high at P0.94 and the weak financial position of the company, further upside will be driven by purely speculative trading.
4| Apollo Global Capital, Inc
Year-to-Date: +197.6 percent
Apollo Global Capital, Inc. (PSE: APL) used to be known as Yehey! Corporation, an internet-based company that offers online advertising services before it was converted into a holding company.
Similar to MRC, APL also is a dormant company with no history of revenue streams since 2015, but unlike MRC, APL’s retained losses were limited at only P86 million.
APL has a stronger balance sheet with mine properties valued at P3.3 billion, zero debt, and stockholders’ equity of P2.7 billion.
Last October, APL’s 90 percent-owned subsidiary, JDVC Resources Corporation announced that it has successfully secured an Export Packing Credit Line from the Development Bank of the Philippines of up to $8 million.
The financing will be used as working capital requirements for its export production of iron ore.
A few weeks ago, APL also announced that it will soon start extraction of magnetite iron reserves in the seabed off Cagayan next year in partnership with Choi Garden owner and entrepreneur, Frank Lao, who is contributing two deep-sea mining vessels with a net capacity of 10,000 tons per day.
Magnetite iron ore is used as an additive in the manufacture of concrete and steel products, magnets, paint, ink, paper, jewelry and cosmetics. It enjoys huge demand in China, which accounts for about 70 percent of the world’s total iron ore imports.
Five years ago, China was producing only 800 million tons of steel per year, but this had ballooned to one billion tons in 2019 and is currently running at 1.1 billion tons on an annualised basis in 2020.
Assuming APL produces 10,000 tons per day and sells it at $90 per ton, we can roughly estimate the company’s annual sales at P16 billion.
Given the current market cap of the company at P35 billion, the projected price-to-sales (P/S) ratio is only 2.25 times compared to average P/S ratios of profitable mining firms at 3.8 times. This gives current share price a huge 68 percent discount.
With a clean balance sheet, confirmed financing line and collaboration, APL appears to be on the right track.
5| Premiere Horizon Alliance Corporation
Year-to-date: +194.1 percent
Premiere Horizon Alliance Corporation (PSE: PHA) is an investment company that is primarily involved in mining-related services.
Total revenues of the company have been declining from P882 million in 2015 to P423 million in 2019. This year, PHA reported that its total revenues for the first nine months declined by 30 percent from P442 million to P306 million.
The decline in revenues coupled with rising interest expenses has resulted to net operating losses for the company in the past two years.
As of September this year, PHA has roughly about P1.5 billion in debt, which is three times its stockholders equity.
But PHA’s stock price has been going up since October from a low of P0.217 per share to as high as P1.25 per share this month on big volume turnover.
The aggressive rise in stock price is attributed to the entry of an investor group led by Marvin Dela Cruz, who agreed to subscribe up to 55 percent ownership in PHA for a total consideration of P925 million at P0.33 per share.
According to the deal, the new investor will infuse an initial amount of P300 million in cash and the balance of P625 million will be paid within two years in the form of Squidpay Technology shares owned by the investor.
Squidpay Technology is a rising payment solutions company that aims to provide a convenient electronic payment and collection system through the use of stored value cards and mobile applications.
The investors aim to eventually make Squidpay Technology a subsidiary of PHA upon completion of the investment subscription.
Based on the financials submitted by the investors, Squidpay Technology generated total revenues of P76 million with net income of P43 million for five months.
If we annualize this on a per year basis, the company could potentially generate about P182 million in revenues with net income of P103 million.
Given the current market capitalization of PHA at P2.25 billion, and assuming Squidpay eventually becomes a wholly owned subsidiary, the prospective Price-to-Earnings (PE) ratio of the stock is only 21.9 times, which is relatively undervalued considering the high growth potential of the company.
The only downside of this backdoor deal is the P1.5 billion debt that the new investors will absorb, which will affect its overall valuation.
If this will push through, with new owner at the helm, we can speculate that some restructuring will be done to spin off the mining assets with the debts.
Henry Ong, RFP, is president of Business Sense Financial Advisors. Email Henry for business advice [email protected] or follow him on Twitter @henryong888