Financial Adviser: 5 Best Performing Blue-Chip Stocks in the First Quarter of 2024 and How to Profit from Them
The first quarter of 2024 has proven to be highly favorable for the stock market, with the PSE Index gaining as much as 8.9 percent from 6,450 at the beginning of the year to a high of 7,021 this month.
This market rally began as early as November last year after the PSE Index hit a low of 5,920. Since then, the stock market has gained over 1,000 points or 18.6 percent increase to date.
One of the driving factors behind this stock market rally is the improving inflation rate, which has consistently decreased from 6.1 percent in September last year to as low as 2.8 percent in February of this year.
The decline in inflation has resulted in reduced volatility in the 10-year Philippine bond yield, which ranged between 6.1 to 6.3 percent in the first quarter, contributing to lower risks and higher valuation for equities.
Out of the 30 stocks in the PSE Index, approximately 17 blue-chip stocks, or 57 percent, have recorded gains in the first quarter, averaging a notable increase of 12.4 percent year-to-date, surpassing the overall market gain of 6.2 percent.
While four out of the top five best-performing blue-chip stocks from the previous year continued to excel, Meralco (PSE: MER) suffered a decline of 11.2 percent.
BDO (PSE: BDO) and Century Pacific (PSE: CNPF) have maintained strong performance with double-digit gains, albeit not making it to the top five for the first quarter. Meanwhile, Bloomberry (PSE: BLOOM) and GT Capital (PSE: GTCAP) have remained at the forefront as the top performers.
As we go through the complexities of financial markets, understanding the strengths of the best-performing stocks can guide us in making informed investment decisions.
In the first three months of 2024, let’s take a look at the performance of the five biggest blue-chip winners to date and how to profit from them:
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1| International Container Terminal Services
Price: P302.2
Year-to-date gain: +27.63 percent
International Container Terminal Services, Inc or ICTSI (PSE: ICT) is one of the world’s leading global operators of international common user container terminals serving the container shipping industry ranging from 50,000 20-foot long containers (TEU) to 3.5 million TEUs.
ICT has 35 terminal operations, including concessions and port development projects, in 20 countries worldwide, which include its flagship, the Manila International Container Terminal.
ICT’s total net earnings have been growing by an average of 13.2 percent per year from $130 million in 2011 to $581 million in 2023, on the back of a steady 11.1 percent annual revenue growth.
The depreciation of the peso, which has fallen by an average of two percent per year from P43.84 to a dollar in 2011 to P55.6 in 2023, as a result of inflation, also supports ICTs earnings.
ICT’s annual earnings growth of 13.2 percent over the past 12 years has translated to 13.7 percent annual increase in its share price, from P53 per share in 2011 to P246 per share in 2023.
This annual appreciation is also consistent with the share price’s compounded annual return of 15.8 percent for the past 27 years where the stock grew from P5.78 per share in 1997 to P307.2 per share today.
By comparison, at P307.2 per share today, ICT’s pricing multiple at 24 times Price-to-Earnings (PE) ratio was similar to its pricing multiple in 2012 at 24.5 times.
Last year, ICT reported that its total revenues grew by 7.0 percent from $2.3 billion the previous year to $2.48 billion, but its net income declined by 14.2 percent to $581 million due to booking of one-time impairment losses of $165 million. Without it, ICT’s income would have grown by 9.8 percent from pre-tax income of $830 million to $912 million.
At 24 times PE, ICT is already trading at a 50 percent premium over its three-year average PE of 16 times. This may be a good time to cash in on the stock as its pricing multiple reaches a historic high.
ICT has recently declared total cash dividends of P11 pesos, which is 10 percent higher than the dividends it declared last year, giving the current share price a dividend yield of 3.6 percent.
If we price ICT based on its three-year average dividend yield of 3.2 percent, its stock price could further rise to P343 per share, offering an opportunity to maximize selling gains.
2| Metropolitan Bank and Trust Company
Price: P66.50
Year-to-date gain: +21.35 percent
Metropolitan Bank and Trust Company or Metrobank (PSE: MBT) is the second largest private bank in the country with total assets of P2.8 trillion. MBT is a member of the GT Capital group, one of the country’s largest and most successful conglomerates with businesses spanning retail, property development and financial services.
MBT’s total interest income derives primarily from loans and receivables, which contributes about 68 percent of the total with the balance from trading of securities and investments in bonds and other debt instruments.
MBT's total interest income has experienced consistent growth, averaging a 7.0 percent increase annually, surging from P68 billion in 2016 to P102 billion in 2022. Concurrently, its net income also rose steadily, averaging 10.4 percent growth from P18 billion in 2016 to P32.8 billion in 2022.
Last year, MBT saw a substantial 28.9 percent surge in net income, reaching P42.2 billion compared to P32.8 billion in the same period last year. This remarkable financial achievement was underpinned by robust year-on-year revenue growth, which grew by 18.5percent to P134.4 billion.
At current share price of P66.5, MBT’s PE stands at 7.3 times, which is lower than its average PE ratios for the past three years at 8.1 times.
If we price MBT at its average PE ratio of 8.1 times we should expect its stock price to reach at least P74 per share.
The other way to price MBT is based on its Price-to-Book (PBV) ratio. At its share price, MBT’s PBV ratio stands at 0.84 times, which is 16 percent discount to its book value per share of P79.3.
A higher PBV ratio for MBT is justified by its higher Return on Equity (ROE). In 2023, MBT’s strong earnings growth has increased its ROE to 12.5 percent, higher than 10.3 percent it registered in 2022.Â
At a PBV ratio of one is to one, and we should target a fair value price for MBT at P79.3 per share.
3| Monde Nissin Corp
Price: P9.95
Year-to-date gain: +19.33 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 main brand, Lucky Me! dominated the instant noodle market with 68 percent market share, while its 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.
In 2015, MONDE acquired meat alternative product manufacturer, Marlows Food Limited, which owns the Quorn Foods brand, for roughly P40 billion.
About 80 percent of MONDE’s annual net sales comes from its branded food and beverage business. Its noodle business contributes about 50 percent of the total net sales, while its biscuit business about 30 percent. The balance of 20 percent comes from MONDE’s meat alternative business from overseas.
In 2022, MONDE booked a one-time non-recurring loss of P20.5 billion due to the impairment of goodwill in relation to its acquisition of Marlow Foods Ltd. This resulted in a huge net loss of P13 billion, which wiped out the company’s retained earnings.
Last year, MONDE’s total revenues for the first nine months of 2023 recovered by eight percent to P59.6 billion from P54.8 billion in the previous year, which resulted in a three percent increase in net income of P5.8 billion.
MONDE’s declining earnings outlook has impacted its share price performance last year, losing 47 percent from its high of P14.92 per share, making it one of the biggest blue-chip losers in 2023 for the second time in a row.
If we annualize MONDE’s nine-month earnings, we can expect a full year net income of P7.7 billion. At current share price of P9.90, the stock will have a PE ratio of 23.2 times.
Compared to its closest comparable, Universal Robina Corp (PSE: URC), which is trading at PE ratio of 16.2 times, MONDE is relatively more expensive. If we price MONDE equal to URC’s 16 times, the stock could fall back to P6.90 level.
Given uncertainties over MONDE’s earnings outlook based on the past two years and the poor growth outlook of its meat alternative business, it is also possible the stock could trade at discount to URC.
4| Bloomberry Resorts Corp
Price: P11.50
Year-to-date gain: +17.48 percent
Bloomberry Resorts Corp (PSE: BLOOM) is one of the largest operators of resort and gaming companies in the country. BLOOM owns Solaire Resort Entertainment in Entertainment City and Jeju Sun Hotel and Casino in Jeju Island, South Korea.
BLOOM derives its revenues mainly from gaming, constituting about 87 percent with hotel, food and beverage contributing about six percent and retail also accounting for six percent.
Prior to pandemic, BLOOM’s annual revenue growth has been averaging by 12.5 percent since 2014, resulting in an annual earnings growth of 19.6 percent. In 2019, BLOOM’s total revenues reached P46 billion with its net income growing to P9.9 billion.
During the pandemic years of 2020 and 2021, BLOOM incurred substantial losses, accumulating a total of P12 billion in losses as its total revenues plummeted by almost 50 percent to below P20 billion per year.
In 2022, BLOOM's total revenues made a robust recovery, surging by 76 percent from P21.9 billion in 2021 to P38.8 billion in 2022. This turnaround allowed the company to achieve a net income of P5.2 billion, marking a significant improvement from the net loss of P4.2 billion.
Last year, BLOOM's total revenues continued to show growth, increasing by 23.4 percent to reach P47.9 billion, the highest in its corporate history. The strong revenue growth of BLOOM has almost doubled its net income to P9.5 billion from P5.1 billion in the previous year.
The robust performance of BLOOM has mirrored the significant increase in its stock price, which grew by as much as 52 percent to a high of P11.68 per share in 2023.
At current share price of BLOOM at P11.50 per share, the stock is trading at PE ratio of 13.3 times, which is 14.7 percent lower than its pre-pandemic historical PE of 15.6 times.
If we value BLOOM at a PE ratio of 15.6, taking into account its robust earnings momentum in 2024, we should anticipate the stock to eventually trade at a minimum of P14.25 per share, giving a potential 24 percent gain from its current price.
5| GT Capital Holdings
Price: P682
Year-to-date: +16.1 percent
GT Capital Holdings (PSE: GTCAP) is one of the leading conglomerates in the country with interests in market-leading businesses across banking, property development, infrastructure and utilities, automotive assembly, financing, and insurance.
Among the key businesses in GTCAP's portfolio are 37.15 percent of Metrobank (PSE: MBT); 51 percent of Toyota; 100 percent of Federal Land; 25.3 percent of AXA Philippines; and 15.98 percent of Metro Pacific.
GTCAP's total revenues primarily derive from its automotive business, contributing about 86 percent of the total. This is followed by equity earnings from its investments, contributing six percent, with the balance coming from real estate and other income.
After GTCAP suffered its lowest revenues in 2020 at P134 billion and P6.5 billion net income, the company quickly recovered in 2021 by increasing its total revenues by 29 percent to P174 billion and net income by 67 percent to P10.9 billion.
In 2022, GTCAP’s total revenues grew by 40 percent to P245 billion, surpassing its 2019 revenues of P222 billion by 10 percent. The strong surge in revenues translated to a remarkable 67 percent increase in net income to P18.4 billion.
Last year, GTCAP's total revenues for the first nine months of 2023 have sustained growth, marking a 25 percent increase to P201 billion from P160 billion in the previous year. This growth has led to a substantial 54 percent increase in net income, rising from P14.9 billion in the previous year to P23.1 billion.
If we annualize GTCAP’s nine-month revenues, we can estimate that its total revenues will likely reach P279 billion by the end of the year. Based on its historical net profit margin of 11 percent, we can project GTCAP’s net income for 2023 to be approximately P30.7 billion, reflecting a 66 percent increase from the previous year.
At this projected net income of P30.7 billion, GTCAP’s PE ratio stands at only 4.8 times, a substantial reduction from its pre-pandemic average PE ratios of 14.4 times.
Furthermore, GTCAP’s current share price stands at only 64 percent of its book value as of September, which is P1,071 per share. Once again, this valuation appears considerably lower than its pre-pandemic average PBV ratio of 1.23 times.
The stock price of GTCAP has been consistently trading below P600 per share since the 2020 pandemic, and it has not surpassed this resistance level for an extended period, despite positive changes in its fundamental valuation.
Given the substantial discount in GTCAP's current pricing multiples, the stock presents a significant value investing opportunity. If we anticipate the market to revert to its pre-pandemic multiples in the future, GTCAP's stock should eventually appreciate to a range of P1,300 to P2,000 per share in the long run.
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
