Friday, October 10, 2008

Stock Market Crash=Opportunity

Today, the stock market worldwide crashed to record lows, Dow Jones dropped more than 20% in a week time. I see the reason of this is more of panic and fear rather than of logic.

This signals a good buying opportunity, may it be for short or long term. The stock market, as fear and panic died down, which I think in just a matter of days, will be going to correct to, also, more than 20%.

Investors will come to their senses. Soon people will have a second look and see bright prospects to the future effect of the US bail-out plan and interest rate cuts.

But, just a word of caution, proceed with extreme care. Ideally, one should buy only stocks of companies with:
  • Strong/good fundamentals - low Price-to earning (PE) ratio (10 and below) and Price-to-book Value (PVB) (below 0.80); Consider also if with positive Retained Earnings account and if possible low (below 1:1) debt-to-equity ratio

  • Good prospects - no or with minimal (below 1%) exposures to bankrupt companies; impact/effect of recession to its operation, in case it materialized, will be minimal, e.g., its products are basic necessities/services (utilities, communication, medicine, medical services, food, etc.). Since oil prices are currently on a decline - transportation sector have a good prospect for now, although will be affected by lesser demand re: product movements. While electronics, properties, leisure, manufacturing, and consumer/retailers will have a hard time.

In my opinion, though, the sell-off for the past day, sets for a rebound even without considering the above guide. In the Philippines, as of today, good stocks to buy are:

  • PLDT (TEL) - good fundamentals, actively traded - can be for short or long trading (Closing Price (CP) - P2,245.00)

  • Globe (GLO) - has good fundaments, actively traded - for long term (CP-P930.00)

  • Philodrill (OV) - this an oil exploration and drilling company. Although fundamentals of this company are not good - i mean, PVB is at high of 2.68 and PE ratio is at 120, its prospects are very good - another oil find in Palawan seas. It previous find is now producing oil. Its production volume is equivalent to 6% of the country's oil demand. This stock is for long term. Another bonus is its stock rights offer (1 for every 4 shares at P0.01) with an ex-date of October 13, 2008. (CP-P0.024)

  • Other good stocks with good fundamentals are: Alliance Global (AGI), Megaworld Properties (MEG), Filinvest Land (FLI), DMC Holdings (DMC), San Miguel Corp. (SMC), Ayala Corp. (AC), and Philix Mining (PX).
I'm buying on Moday.


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