Stock Market Weekly: Investors keep an eye on US data releases

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) rose by 1.5% eek-on-week to close at 7,056.62 (+105.08 points). The benchmark index closed at the 7,000 level on Monday, its first occurrence since April 25, 2022, buoyed by positive sentiment from markets abroad and seven straight sessions of foreign buying.

Investors also factored in the OFW cash remittances for November 2022 which beat estimates at USD 2.93 billion (+5.8% year-on-year versus the consensus estimate of 4.2%), bringing 11-month 2022 remittances to USD 32.65 billion (+3.4% y-o-y). At the latter part of the week, traders took some profit because of market overbought levels and slowdown concerns due to lower-than-expected US retail sales.

Top index performers were GT Capital (GTCAP) (+6.9%), Wilcon Depot Inc. (WLCON) (+6.1%), and Ayala Land Inc. (ALI) (+5.3%), while index laggards were Meralco (MER) (-5.9%), Universal Robina Corp. (URC) (-5.2%), and JG Summit (JGS) (-2.5%). The index breadth was positive with 17 gainers versus 12 losers. The average daily turnover value was PHP 7.1 billion. Foreigners were net buyers by PHP 4.5 billion.

WHAT TO EXPECT THIS WEEK

We expect the market to trade sideways as investors closely watch the key economic data releases from the US: the Q4 advance estimates of US GDP and core Personal Consumption Expenditures (PCE) index, initial jobless claims, and new home sales.

STOCK CALLS FOR THE WEEK

Bank of the Philippine Islands (BPI) — BUY ON PULLBACKS

BPI broke above its three-year resistance level of PHP 100.00 and is now trading at around PHP 112.40, its highest since March 2018. Given the breakout, it is optimal to wait for the pullback before accumulating. However, the stock’s rally has been a bit sharp, with trading near overbought levels. Those with exposure who bought at our buying level may take some profits.

As for management guidance, the company expects earnings growth this year to be driven by higher revenue from continued loan growth and expansion in net interest margins, which should offset growth in operating expenses. Moreover, provisions are expected to trend closer to pre-pandemic levels. Accumulate once BPI pulls back to PHP 108.00/ PHP 106.00. Set cut loss below PHP 99.00 and take profit at PHP 120.00.

DMCI Holdings, Inc. (DMC) — SET TRAILING STOPS

DMCI’s recent rally was likely driven by the company’s expected addition to the PSEi by February 2023. Given that DMC has rallied by 37% since November 2022, profit taking can quickly occur especially with the stock now trading at overbought levels. Note that since 2019, the share price of those added to the PSEi drops at an average of 7% one month after the announcement date.

Suggested profit taking levels are at around the 8- or 9-day Exponential Moving Average Price (EMA). Since EMAs are fast moving and volatile, we recommend setting trailing stops in line with the value of the EMA on the date of the planned day of profit taking. Looking at company guidance, for SCC, despite the risk that coal prices could decline in 2023 on global recession concerns, management expects the Newcastle Coal Index (NEWC) to average USD 360 per metric ton in 2023, just 1% lower as compared to the average price in the first nine months of 2022. For Maynilad, the completion of the rate rebasing exercise and the approval of the tariff adjustments raise the company’s earnings visibility going forward and eases regulatory concerns. For DMCI Power, the additional capacity in Masbate is expected to boost the segment’s contribution to the group. Set trailing stops at around the 8- or 9-day EMA. The next support levels are at PHP 12.00/PHP 10.80.

Century Pacific Food Inc. (CNPF) — BUY ON BREAKOUT

CNPF’s share price broke out of a symmetrical triangle, an intermediate-term bullish pattern. The measured price target after CNPF broke out if its symmetrical continuation triangle is PHP 27.00 to PHP 27.50. according to Technical Insight, our automated chart pattern recognition program. Regarding fundamentals, we like CNPF because of the following: (i) its diversified product portfolio that is well positioned to capture changing consumer preferences and weather macroeconomic headwinds; (ii) its pricing power that can partially cushion cost pressures; (iii) its OEM export business that mitigates the impact of the weak local currency;

and (iv) robust operating cash flows and strong balance sheet.

Accumulating once CNPF breaks above PHP 25.00 is advisable. Set stop limit orders below PHP 23.75 and take profit at PHP 27.50/PHP 28.00. For long-term investors, our target price for CNPF is PHP 29.00.

PSEi TECHNICAL ANALYSIS

Resistance: 7,500

Support: 6,800 / 7,000

SUPPORT: 6,800/7,000 RESISTANCE: 7,500

The PSEi rallied for the fifth straight week, complemented by strong volume and net foreign buying. The pullbacks during the latter part of the week have also been shallow, further signaling that the bulls are in control. MACD confirms the bullish momentum with the MACD hovering above both the signal and zero lines.

TRADING PLAN

Continue to hold, accumulate more once the market pulls back to 6,800. Stop Limit orders below 6,500

KEY DATA RELEASES

The key data releases this week are:

Tuesday, January 24, 2023
– US S&P Global preliminary manufacturing Purchasing Managers’ Index (PMI) for January 2023 (consensus estimate is 45.0; actual for December 2022: 44.7)

Thursday, January 26, 2023
– PH GDP YoY for 4Q 2022 (consensus estimate: 6.8%; actual for 3Q 2022: 7.6%);
– PH exports YoY for December 2022 (consensus estimate: 8.8%; actual for 3Q 2022: 13.2%);
– PH imports YoY for December 2022 (consensus estimate: -6.0%; actual for 3Q 2022: -1.9%);
– US New Home Sales for December 2022 (consensus estimate: 610K; actual for November 2022: 640k):
– US GDP annualized quarter-on-quarter for 4Q 2022 (consensus estimate: 2.7%; actual for 3Q 2022: 3.2%); and
– US Core Personal Consumption Expenditures (PCE) QoQ for 4Q 2022 (consensus estimate: 3.9%; actual for 3Q 2022: 4.7%)