Stock Market Weekly: Bargain hunting amid earnings and data releases 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange (PSEi) dropped by -0.70% week-on-week (w-o-w) to close at 6,405.91 (-44.93 points), marking its third straight week of decline. The benchmark index mostly traded in the red as investors remained cautious amid the lower-than-expected 2nd quarter 2023 Philippine GDP at 4.6% (consensus estimate: 6.0%), foreign direct investments (FDI) dropping to USD 488 million (-34% y-o-y), and unemployment rate rising to 4.5% (May: 4.3%).

Investors recalibrated portfolios following the results of the August 2023 MSCI Index Review, with the Philippines’ marginal downweight of 1.6 basis points (bps), effective on the close of August 31, 2023. On the international front, investors digested the lower-than-expected US July inflation at 3.2% (consensus estimate: 3.3%; June: 3.0%).

WHAT TO EXPECT THIS WEEK

This week, we expect the market to bounce on bargain hunting as investors await major earnings and data releases. The market will closely monitor the tail-end of the earnings season, cash remittances reports, and the interest rate decision of the Bangko Sentral ng Pilipinas (BSP).

The BSP is expected to extend its rate pause amid cooling inflation and slower economic growth in the 2nd quarter of 2023. However, gains may be capped as the market anticipates the fifth consecutive week of fuel price hikes by as much as PHP 1.70 to PHP 1.90/liter on gasoline and PHP 1.40 to PHP 1.60/liter on diesel. On the foreign front, investors will also be on the lookout for the Federal Open Market Committee (FOMC) meeting minutes which will provide guidance on the interest rate direction of the US Fed.

Resistance: 6,600/6,750

Support: 6,000/6,200

ANALYSIS

Last week, the PSEi continued to drop and is currently hovering around the 6,400 key support level. Furthermore, the market traded below key moving averages (50-day, 100-day, and 200-day) with the technical indicator moving average convergence/divergence (MACD) falling below the signal line.

We believe that should the PSEi continue its descent, it can retrace towards the next support levels at around 6,000 to 6,200. Otherwise, should the PSEi bounce back, it can retest the next resistance levels at 6,600 to 6,750, hence negating the current bearish sentiment in the market.

Lighten up if the PSEi bounces but fails to break above 6,750. Add to position once the market decisively breaks above 6,750.

STOCK CALLS FOR THE WEEK

Ayala Land, Inc. (ALI)/ BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 37.17

Ayala Land, Inc. (ALI) posted a 2nd quarter 2023 net income of PHP 6.9 billion (+52% q-o-q), bringing its 1st half 2023 net income to PHP 11.4 billion (+41% y-o-y), in line with consensus estimates on the back of sustained resilience of the property market as well as consumer activity.

As for price action, ALI is currently trading above key moving averages (50-day, 100- day, and 200-day), forming higher highs and higher lows with its MACD reflecting a bullish trend for the counter as well. However, ALI is at near overbought levels with the technical indicator relative strength index (RSI) at 67.2, thus, the counter is likely to correct and retrace its next support level at PHP 26.00. Accumulating once ALI pulls back to PHP 26.00 is advisable. Set stop limit orders at PHP 23.92 and take profits at around PHP 29.90/ PHP 30.16.

Aboitiz Equity Ventures, Inc./ BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 53.87

AEV, together with Coca-Cola Europacific Partners PLC, disclosed that they have entered into a nonbinding bid to acquire 100% of Coca-Cola Beverage Philippines, Inc. (CCBPI) for an enterprise value of USD 1.8 billion. In line with its portfolio diversification strategy, AEV said that the acquisition of the iconic and profitable global brand will be value accretive to AEV’s shareholders.

As for technical analysis, AEV has exhibited a symmetrical triangle pattern formed by two converging trend lines with a wide base at the beginning and narrows down over time. The pattern has been developing since late-2022 and is currently on a tightening consolidation. As the trading range contracts, the counter is poised to breakout or breakdown. Accumulating once AEV breaks above PHP 56.00 on strong volume is advisable. Set stop limit orders below PHP 51.50. Take profits at around PHP 64.40.

Jollibee Foods Corp. (JFC)*/ BUY ON PULLBACK | FMSEC TARGET PRICE: PHP 275

Jollibee Foods Corp. (JFC) announced that it entered into a joint venture with Food Collective, Pte. Ltd. (FCPL) on August 4, 2023, to own and operate Tiong Bahru Bakery and Common Man Coffee Roasters in the Philippines. In addition, the counter recently reached a new multi-year high on August 1, 2023.

As for price action, JFC is currently trading on an uptrend above key moving averages (50-day, 100-day, and 200-day), forming higher highs and higher lows since May. The counter is currently retesting the PHP 260.00 resistance level, reaching a multi-year high of PHP 261.00 on August 1, 2023. We think that the counter can retain its current uptrend once it breaks above the PHP 260.00 resistance, hence, accumulating at current levels is advisable.

We recommend accumulating JFC at current levels. Set stop limit orders at PHP 232.75 and take profits at around PHP 290.95/PHP 293.50. For long-term investors, our target price for JFC is PHP 275.00 (+8.70% from the last closing price).

KEY DATA RELEASES

1) OF cash remittances YoY for Jun 2023 from Monday-Friday, August 14-18, 2023 (consensus estimate: 2.9%; May 2023: 2.8%)

2) BSP interest rate decision on Thursday, August 17, 2023 (consensus estimate: no change in rates)

3) US initial jobless claims as of August 12, 2023, on Thursday, August 17, 2023

4) Overall Balance of Payments (BOP) for Jul 2023 from Friday-Tuesday, August 18-22, 2023 (June 2023: USD 606 million).