Contrarians love to say that there is a good chance you can make big money when you do what is not popular in the market, but it’s not always easy to buy stocks when the rest of the world is selling.
The PSE Index has already lost over 20 percent since it peaked in January and it may lose some more in the coming weeks towards 7,000-level as market sentiment continues to be bearish.
The Bangko Sentral ng Pilipinas has just raised interest rates by 0.50 percent last week while the peso has weakened anew to Php54.30 against the dollar. Meanwhile, the market is expecting inflation to increase further next month to about seven percent.
While most stocks nowadays may look cheap, there is no assurance that a sustainable recovery is underway. In fact, share prices may get cheaper with the prevailing market pessimism.
It may probably take some time before the market finally returns. For the meantime, it will be good for investors to be aware of the potential value stocks in the market.
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 first.
Let’s take a look at the five biggest blue chip losers to date that have lost roughly half of their market values this year and where you can possibly pick them up:
1. GT Capital Holdings
Loss from Year High: -42%
GT Capital (PSE: GTCAP) is a major Philippine conglomerate that is controlled and majority owned by business tycoon George Ty.
It has interests in market-leading businesses such as 36.1 percent in Metropolitan Bank and Trust; 51 percent in Toyota Motor Philippines; 100 percent of Federal Land; 25.3 percent in AXA Life Insurance and 15.5 percent in Metro Pacific Investments.
GTCAP’s net earnings have been growing by 11 percent per year from Php8.6 billion in 2013 to Php14.2 billion in 2017 on the back of 18 percent annual revenue growth. This year, the company reported slightly lower first-half earnings of Php7.1 billion compared to Php7.2 billion during the same period last year on lower revenues, which fell nine percent.
The stock of GTCAP has lost 42 percent from its high of Php1,400 this year and is currently trading at its 2013 historical prices with key support at around Php700 level.
2. LT Group, Inc.
Loss from Year High: -40.7%
LT Group (PSE: LTG) is the holding company controlled and majority-owned by business tycoon Lucio Tan. It owns 100 percent of Tanduay, which is the third-largest distilled spirits producer in the country with a 25-percent market share; 100 percent of Asia Brewery Incorporated; indirect share of 49.6 percent of Philip Morris Fortune Tobacco, the leading tobacco manufacturer with 67-percent market share; 56.5 percent in Philippine National Bank (PNB) and 100 percent of Eton Properties.
About half of LTG’s revenues come from PNB, 26 percent from Tanduay and 20 percent from Asia Brewery. Total revenues have been growing by compounded annual growth rate of seven percent from Php40.3 billion in 2010 to Php63.8 billion in 2017. This translates to an annual nine percent growth in earnings from Php5.9 billion in 2010 to Php10.8 billion in 2017.
This year, LTG reported that its first-half earnings grew by 97.9 percent to Php8.9 billion from Php4.5 billion in the same period last year as its revenues increased by 13.6 percent to Php35.6 billion.
Despite the good news, the stock has been falling and is one of the most beaten conglomerate stocks. Further weakness in the stock may send the stock to its long-term historical support at Php12.00.
3. Security Bank Corp.
Loss from Year High: -40.3%
Security Bank Corp (PSE: SECB) ranks as the fifth largest bank in total assets with a network of 302 branches. It also ranks fifth in biggest market capitalization among listed private domestic universal banks in the country.
SECB’s net earnings have been growing by 15 percent per year from Php5 billion in 2013 to Php10.3 billion in 2017. This year, SECB however reported an 18-percent drop in first-half earnings at Php4.3 billion compared to Php5.2 billion from the same period last year.
Concerns of rising interest rates may increase cost of funding among banks that lower net margins. All of the banking stocks have been heavily battered during the market correction and SECB is one of the most damaged in the group.
The stock of SECB is currently trading at 9.7 times Price-to-Earnings (P/E) ratio, which is lower than banks’ average of 11x and market average of 17x.
If the stock price continues to fall, it may find some historical support at Php145-level.
4. Aboitiz Equity Ventures, Inc.
Loss from Year High: -36.8%
Aboitiz Equity Ventures (PSE: AEV) is majority-owned and controlled by the Aboitiz family and is one of the largest conglomerates in the country.
AEV owns 76.9 percent of listed company Aboitiz Power Corporation, one of the largest private power producers that supply electricity in the high growth areas of Central Luzon. It also owns 49 percent of Union Bank of the Philippines.
About 77 percent of AEV’s revenues come from power generation while the rest are contributed by its equity investments from financial services, food manufacturing, real estate and infrastructure.
AEV’s earnings growth for the past five years has been volatile. Its net income in 2017 was Php21.6 billion, four percent lower than Php22.5 billion the previous year. This year, it also reported 1.8 percent lower first-half earnings of Php10 billion from Php10.3 billion the same period last year.
Last week, AEV subsidiary Aboitiz Power announced that it has entered into an agreement to acquire equity interests in AA Thermal Inc, the thermal energy platform of Ayala Corporation‘s AC Energy in the Philippines, for $579.2 million.
The stock of AEV has recently bounced off its recent low at Php44.10. Further weakness in the stock may send the stock testing historical lows at Php40.
5. Bank of the Philippine Islands
Loss from Year High: -36.4%
Bank of the Philippine Islands (PSE: BPI) is the country’s third largest bank in terms of total assets and equity capital with 839 branches nationwide.
BPI’s net earnings have been growing by an average of 15 percent per year for the last 10 years since 2008 on the back of its strong revenue growth, which has increased by eight percent annually.
This year, BPI reported that its first-half earnings went down by 5.7 percent to Php11 billion from Php11.7 billion in the same period last year despite a 15.8-percent growth in revenues.
BPI has recently completed its stock rights offering which raised a total of Php50 billion at Php89.50. The stock price is currently trading at 11 percent lower its stock rights offer price. Further weakness may send the stock to long-term support at Php77.75.
Henry Ong, RFP, is president of Business Sense Financial Advisors. Email Henry for business advice firstname.lastname@example.org or follow him on Twitter @henryong888