Stock Market Weekly: Sideways trading with an upward bias

WHAT HAPPENED LAST WEEK 

 The Philippine Stock Exchange index (PSEi) ended at 6,726.14, 20.19 points lower than the previous week’s close, or down by 0.3% week-on-week. Investors’ worries on inflation and the global economy were offset by positive investor sentiment in the US markets which was driven by strong corporate earnings releases. Locally, investors continued to take a wait-and-see approach as the incoming administration has yet to lay down its economic plans following announcements of would-be cabinet secretaries of president-elect Ferdinand “Bongbong” Marcos Jr. 

 Top index performers were Aboitiz Equity Ventures (AEV) which was up 6.2%, International Container Terminal Services Inc. (ICT) up 6.0%, and Monde Nissin (MONDE) up 4.4%, while index laggards were Converge Information Communications Technology Inc. (CNVRG) down by 5.5%, JG Summit Holdings Inc. (JGS) down by 5.3%, and Emperador Inc. (EMP) down by 4.1%. The index breadth was negative with nine gainers versus 20 losers. Average daily turnover value was PHP 5.9 billion. Foreigners were net sellers by PHP 9.8 billion. 

WHAT TO EXPECT THIS WEEK 

The market is expected to trade sideways with an upward bias as investors await new developments on president-elect Ferdinand “Bongbong” Marcos Jr.’s appointments and economic plans. Moreover, investors will be closely watching data on bank lending in the Philippines as well as the US and Philippine manufacturing Purchasing Managers Index (PMI) for May 2022 as they look for signs of strengthening economic recovery. 

STOCK PICKS FOR THE WEEK 

Converge ICT Solutions, Inc. (CNVRG) — BUY 

CNVRG has approved a share buyback program to acquire up to approximately PHP 6.5 billion from Coherent Cloud Investments (an affiliate of Warburg Pincus), effectively increasing the public float to 30% from 26%. The share buyback program shows that the company believes that the stock is undervalued and is confident of its prospects. CNVRG will also be added to the MSCI PH Standard Index by the close of May 31, 2022, providing a catalyst for possible short-term price appreciation. Accumulating CNVRG at current prices and on pullbacks to PHP 25 is advisable. Set stop limit orders below PHP 24 to protect capital. Take profit at PHP 29.50 to PHP 31 for short-term traders, and PHP 41 for long-term investors. 

First Gen Corp. (FGEN) — BUY 

The stock is currently trading at oversold levels which historically has shown that its share price tends to rebound by more than 10% within a month. Given this, investors or aggressive bargain hunters can take advantage of the stock trading at oversold levels to ride the probable bounce. Accumulating FGEN at current levels is advisable. Set stop limit orders below PHP 18.60 to protect capital. Take profit at around PHP 21.50/PHP 22.00. 

Solar Philippines Nueva Ecija Corp. (SPNEC) — BUY 

The stock is attempting to break out of its downtrend as momentum is turning bullish. Solar PH recently secured over 10,000 hectares of land in Batangas, Nueva Ecija, and Tarlac which will soon be developed into solar energy zones. To fund the remainder of its projects, Solar PH plans to enter into joint ventures with partners. It may also raise more capital, including a possible stock rights offering, in June 2022. Accumulating SPNEC once the share price breaks above PHP 1.85 is advisable. Set stop limit orders below PHP 1.74 to protect capital. Take profit at around PHP 2.08/PHP 2.20. 

PSEi TECHNICAL ANALYSIS 

Resistance: 6,800 / 7,200 

Support: 6,400 / 6,180  

The PSEi managed to stay above the 6,700 level for the second straight week.  

Technical indicators are less negative and moving towards neutral. The index may attempt to break out of the immediate 6,800 resistance. A successful breakout will likely result in a retest of the next resistance level at 7,200. 

TRADING PLAN 

Continue setting stop limit orders especially below 6,400 to protect capital. Support levels are currently at 6,400/6,180.  

KEY DATA RELEASES 

Tuesday, May 31, 2022 |
– Bank lending net of reverse repurchase rates (RRPs) year-on-year for April 2022 (8.9% in March 2022) 

Wednesday, June 1, 2022
– US manufacturing PMI for May 2022 (57.5 preliminary reading)
– PH manufacturing PMI for May 2022 (54.3 in April 2022) 

Friday, June 3, 2022
– US change in nonfarm payrolls for May 2022 (329,000 est., 428,000 in April 2022)