Financial Adviser: 5 Worst Performing Blue-Chip Stocks in the First 7 Months of 2024 and How to Profit from Them
As we pass the mid-year mark, the stock market faces significant challenges. Persistent market uncertainties, driven by the looming threat of a global recession and ongoing conflicts in the Middle East, have dampened investor sentiment. These factors have contributed to the declining and volatile state of the stock market.
Despite encouraging signs of decreasing inflation and interest rates, investors remain cautious, prompting them to keep their funds outside the stock market. The recent downturn in global stock markets, including significant losses last weekend and yesterday, reflects heightened investor anxiety over these geopolitical tensions and economic uncertainties.
The PSE Index has already lost by more than 400 points in two weeks to 6,400 level. The recent breakdown of the PSE Index below 6,500 support suggests that the market is likely to trend lower towards its historical low last June at 6,150.
While many stocks currently appear undervalued, there is no guarantee of a sustainable recovery. In fact, share prices may continue to decline amidst prevailing market pessimism. The market's Price-to-Earnings (PE) ratio stands at a historically low 11.1 times, but given the uncertainties and sentiment, pricing multiples may fall further. By calculating the current opportunity cost and adding a standard risk premium, we estimate the fair value of the PSE Index at a PE ratio of 8.9 times, suggesting a potential 19.8 percent decline to 5,158.
It may take some time before the market finally recovers. In the meantime, investors should be aware of potential value stocks in the market. The philosophy of contrarian investing teaches that the rewards of standing apart from the crowd and investing intelligently, even when it is not popular or rewarded in the short term, can be substantial over the long term. Investing during a market downtrend may offer opportunities for significant potential returns in the long run.
For the first seven months of 2024, we take a look at the five biggest blue-chip losers to date and where investors can potentially pick them up. Stocks that have tumbled the most often have the highest potential of providing substantial returns upon recovery, although not all badly beaten stocks will recover first.
In summary, while the market remains bearish, opportunities still exist for those who are willing to look beyond the current pessimism and invest strategically?.
Here are the five worst-performing blue-chip stocks in the PSE and how to profit from them:
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1| Nickel Asia Corporation
Price: P3.31
Year-to-date loss: -39.6 percent
Nickel Asia (PSE: NIKL) is the largest producer of lateritic nickel ore in the Philippines, and one of the largest nickel companies in the world. It also has a growing interest in renewable energy development.
NIKL operates four major mines: Rio Tuba in Bataraza, Palawan, which has a capacity of 24,000 tonnes of contained nickel; Taganito in Surigao del Norte, which a capacity of 36,000 tonnes; Hinatuan in Surigao del Norte; and Cagdianao in Dinagat Islands.
The company is also into renewable energy business through its 86.3 percent subsidiary, Emerging Power, Inc., which operates a 132 MW solar plant in Subic Bay freeport as well as geothermal service contracts in Mindoro and Biliran.
NIKL’s revenues, 92 percent of which come from ore and limestone sales, have been growing by an average of 12.5 percent for the past 14 years from P4.7 billion in 2009 to P24.7 billion in 2023.
This growth in revenue has resulted in 19.6 percent annual growth in net income from P303 million in 2009 to P3.7 billion in 2023.
Prices of nickel ore in the global market have been declining since last year, which have significantly affected the company’s revenue growth. Last year, NIKL’s total revenue fell by 11.7 percent from P28 billion in 2022 to P24.7 billion last year. The fall in revenues brought down its total net income for 2023 by 52.7 percent to P3.7 billion from P7.9 billion in the previous year.
This year, sustained weakness in global nickel prices led to a sharp decline in NIKL’s first-quarter revenues, which dropped by 34 percent to P2.7 billion, compared to P4.04 billion in the same period last year. The fall in revenues resulted to 79 percent decline in NIKL’s net income from P969 million in 2023 to only P202 million.
The stock of NIKL has already decreased by 58 percent from its peak last year at P7.87 per share. Based on NIKL’s 12-month trailing earnings of P2.9 billion, the stock’s PE ratio currently stands at 15.5 times. At this pricing multiple, the current share price of NIKL at P3.31 per share still represents a 39.6 percent premium over the market average of 11.1 times. If priced at par with the market PE ratio of 11.1 times, the stock should be a good buy around P2.35 per share.
Given the current weakness in the global prices of nickel, NIKL’s earnings might continue to fall this year. Lower earnings mean lower dividend payouts also.
Last year, NIKL paid a total dividend of P0.24 per share, which represents a decrease of 47 percent from 0.45 per share in dividends it paid in 2022. This year, the company has paid 0.13 per share in dividend last March, which was 23.5 percent lower than the previous year. Assuming the same decrease in dividend for November, NIKL is expected to pay about P0.05 per share.
Given the lower dividend of P0.18 per share this year, the prospective dividend yield of the stock at its current price is 5.4 percent, which is significantly lower than its average dividend yield of 8.06 percent in 2022 and 2021. Assuming we price the stock to match an 8.06 percent dividend yield, NIKL should further decline to a price range of P2.25 to P2.35 per share.
2| JG Summit Holdings
Price: P25.95
Year-to-date loss: -31.98 percentÂ
JG Summit Holdings (PSE: JGS) is one of the largest and most diversified conglomerates in the Philippines. It is majority owned and controlled by the Gokongwei family.
About 50 percent of JGS’ revenue is contributed by its subsidiary, Universal Robina Corporation (PSE: URC), one of the largest snack food and beverage companies in the ASEAN region. Following closely is the pioneer budget airline, Cebu Pacific Air (PSE: CEB), contributing 19 percent, and top property developer Robinsons Land (PSE: RLC), contributing 16 percent.
JGS also has significant stakes in PLDT (PSE: TEL) with an 11.2 percent share, and Meralco (PSE: MER) at 26.4 percent. JGS also owns 37 percent of SingLand or Singapore Land Group Limited (SGX: U06), a leading property developer in Singapore.
JGS’s total revenues over the past 13 years have been growing by an average of 10.4 percent per year from P94 billion in 2009 to P343 billion in 2023. This steady growth resulted in annual earnings growth of 6.8 percent from P8.5 billion to P20 billion in 2023.
This year, JGS’s total revenues for the first three months of 2024 grew by 18 percent, increasing from P82 billion last year to P96.7 billion. The rise in revenues increased the company’s operating income by 33.6 percent to P14.2 billion from P10.6 billion in 2023.
Accounting for a one-time gain from the merger of Robinsons Bank with the Bank of the Philippine Islands amounting to P7.9 billion, JGS’ net income for the first quarter increased by over 100 percent, rising to P15 billion from P8.4 billion last year.
Without the one-time gain, JGS’ net income would have increased only by 6.5 percent at P8.07 billion from P7.9 billion in the same period last year.
The stock of JGS has been declining for the past few years, losing about two-thirds of its value from its peak price of P75.9 per share in 2021 to only P25.95 per share this year.
At the current share price of P25.95, the stock is trading at a 12-month trailing PE ratio of only 7.59 times, which is roughly half of its historical PE average of 15 times in 2023. Given the company's single-digit earnings growth record, both historically and prospectively, at less than seven percent per year, the current pricing multiple of the stock appears to be justified.
Given the earnings growth trend of JGS, assuming we price the stock at a 6.0 percent growth rate to match its PE ratio, we can expect the stock to trade further lower, in the P20 per share range.
(Disclosure: Esquire Philippines is published by Summit Media, which is part of the Gokongwei Group).
3| Aboitiz Equity Ventures
Price: P33.70
Year-to-date loss: -24.4 percentÂ
Aboitiz Equity Ventures, Inc (PSE: AEV) is one of the largest holding companies in the country with interests in power, banking, food, real estate, and infrastructure.
AEV owns 52 percent of Aboitiz Power Corporation (PSE: AP), the country’s leading provider of renewable energy and 49.92 percent of Union Bank of the Philippines (PSE: UBP), one of the country’s top universal banks and a leading digital bank.
AEV’s net income has been growing by an average of 12.7 percent in the past 20 years: from P2.2 billion in 2002 to P24 billion in 2022 on the back of 14 percent annual growth in its total revenues. Last year, AEV’s total revenue growth was almost flat at P310 billion, while its net income slightly declined by 2.0 percent to P23.5 billion.
This year, AEV’s total revenue for the first quarter continued to slow down, falling by 8.9 percent to P69 billion from P75.9 billion last year. However, lower operating expenses helped the company to improve its net income, which grew by 22 percent to P4.9 billion from P4.0 billion in the same period last year.
The stock of AEV has been on a downtrend for many years, having lost about 60 percent of its value from its peak at P84.4 in 2016. Currently, AEV’s 12-month trailing PE ratio stands at only 7.7 percent, which is 27 percent lower than its average PE ratio of 10.6 times in 2023.
The stock is currently trading at its 2021 low. Current negative sentiment in the market could push the stock price to fall further towards its 2020 pandemic low at P26.7 per share. Buying the stock at this level should provide sufficient discount for higher returns in the long-term.
4| Alliance Global Group, Inc
Price: P8.75
Year-to-date loss: -22.4 percent
Alliance Global Group, Inc (PSE: AGI) is one of the leading conglomerates in the Philippines, with interests in property development, food and beverage, and integrated tourism development.
AGI owns controlling interests in Emperador, Inc. (PSE: EMP), the largest liquor company in the Philippines and largest producer of brandy in the world; and Megaworld Corporation (PSE: MEG), one of the leading property developers in the country.
AGI also owns 49 percent of Golden Arches Development Corporation, the master franchise operator of McDonald’s Corporation in the Philippines.
About 32.9 percent of AGI’s total revenues come from Megaworld followed by Emperador with 36.3 percent; Golden Arches Development with 16.8 percent, and Travellers Group, 12.47 percent.
Total revenues of AGI have been growing by an average compounded growth rate of 12.9 percent prior to pandemic from P38 billion in 2009 to P184 billion in 2022. This steady increase in revenues translated to annual growth in earnings by 9.7 percent from P4.8 billion in 2009 to P16.1 billion in 2022.
Last year, AGI’s total revenues increased by 14.7 percent, rising from P183 billion to P210 billion. This strong growth in revenues boosted AGI’s net income by 21.7 percent, increasing from P16.1 billion in 2022 to P19.6 billion.
This year, AGI’s total revenues for first quarter slowed down, increasing by only 2.8 percent to P49.4 billion from P48.07 billion in the same period last year. The minimal growth in revenues and higher operating costs and finance charges resulted to a 10 percent decline in net income to P4.2 billion from P4.7 billion in 2023.
The stock of AGI has been on the decline since 2014 and has lost about 72 percent of its value from its peak at P31.85 per share. AGI is currently trading at PE ratio of only 4.1 times only, which offers 20 percent discount to its average PE of 5.2 times in 2023.
AGI is also trading at a great discount of 70 percent to its book value of P29.6 per share. Further weakness in the property sector, where AGI has significant exposure, should bring its stock price lower. A fall towards its historical support at P5.30 per share should offer a compelling opportunity to buy the stock.
5| Wilcon Depot
Price: P16.70
Year-to-date loss: -20.1 percent
Wilcon Depot (PSE: WLCON) is the leading home improvement and construction supplies retailer in the Philippines, offering extensive selection of local and international brands across all categories with 18 branches spread all over Metro Manila and 68 stores in key cities and municipalities of Luzon, Visayas, and Mindanao for a total of 86 operating stores nationwide.
WLCON's total revenues have experienced robust growth, expanding by 18.2 percent over the past six years, climbing from P12.3 billion in 2016 to P33.6 billion in 2022. This steady rise in revenues has translated into an impressive annual net income growth rate of 27 percent, surging from P886 million in 2016 to P3.8 billion in 2022
Last year, WLCON’s total revenues began to slow down, growing only by 3.0 percent to P34.6 billion. Higher operating expenses, higher finance charges and slower revenue growth led WLCON’s net income to fall by 9.5 percent from P3.8 billion last year to P3.5 billion.
This year, WLCON’s total revenue growth for the first three months continues to weaken, primarily due to a slowdown in the property sector and the economy as a whole. WLCON’s first quarter revenues declined by 2.5 percent, while its net income fell by 23 percent to P739 million.
WLCON’s stock price has been on the decline since last year, losing about 51.5 percent of its value from its high of P34.45. Despite the fall in the share price, WLCON’s 12-month trailing PE ratio is still relatively high at 21 times compared to the market average of 11.1 times.
The uncertainties surrounding WLCON’s earnings outlook, stemming from the slowdown in the property sector, may persist, continuing to dampen investor sentiment on the stock.
Currently, WLCON’s premium over market average is about 90 percent, which may not be realistic anymore given the market environment. If we adjust WLCON’s premium to 70 percent, this will mean that the stock’s PE ratio will have to fall to 18.9 times.
At 18.9 times PE, WLCON’s stock price should fall further to P15 per share level over the medium term.
Henry Ong, RFP, is an entrepreneur, financial planning advocate and business advisor. Email Henry for business advice hong@financialadviser.ph or follow him on Twitter @henryong888
