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Recommendation
Last week, the PSEi rose by 1.5% week-on-week to close at 7,056.62 (up 105.08 points). The benchmark index managed to close at the 7,000 level on Monday, the first time since 25 Apr 2022, buoyed by positive sentiment from markets abroad and seven-day straight session of foreign buying. Investors also digested news on OFW cash remittances for November 2022 beating estimates at US$2.93 billion (up 5.8%). At the latter part of the week, slowdown concerns due to lower than expected US retail sales prompted traders to take some profit and technically overbought levels slightly held back the index.
PSE Market Outlook this week
This week, we expect the market to trade sideways as investors closely watch the key economic data releases from US – the Q4 advance estimates of US GDP and core Personal Consumption Expenditures (PCE) index, initial jobless claims, and new home sales in US will be reported this week. These data will likely dictate the US market action this week which investors will closely track.
Stock Picks this week
1. DMCI Holdings, Inc. (DMC)
| Recommendation | Set trailing stops |
| 1-Year Target Price | PHP 11.70 |
DMC’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 22, profit taking can quickly occur especially with the stock now trading at overbought levels with RSI at 73.8.
Note that since 2019, the share price of those getting included in the PSEi drops at an average of 7% one month after the announcement date. Suggested profit taking levels are at around the 8-day EMA/9-day EMA. Note that the EMAs are fast moving and volatile, and 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 US$360 per metric ton in 2023, just 1% lower as compared to the average price in 9M22. For Maynilad, the completion of the rate rebasing exercise and the approval of the tariff adjustments raises 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-day EMA/9-day EMA. Next support levels are at P12.00 / P10.80.
2. Bank of the Philippine Islands (BPI)
| Recommendation | Buy on pullbacks |
| 1-Year Target Price | PHP 99.00 |
BPI broke above its three-year resistance level of P100.00 and is now trading at around P112.40, its highest since March 2018. However, the stock’s rally has been a bit sharp with the BPI traded near overbought levels, with the RSI as high as 68 last week. That being said, it is optimal to wait for the pullback before accumulating. Meanwhile, those with exposure can 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 P108.00 / P106.00. Set cut loss below P99.00 and take profit at P120.00. For long-term investors, our target price for BPI is at P99.00.
3. Century Pacific Food Inc. (CNPF)
| Recommendation | Buy on breakout |
| 1-Year Target Price | PHP 29.00 |
CNPF formed an intermediate-term bullish pattern, a symmetrical triangle. A symmetrical triangle is formed after the price has broken upward out of a consolidation period, suggesting a continuation of the prior uptrend. According to Technical Insight, our automated chart pattern recognition program, the measured price target after CNPF broke out if its symmetrical continuation triangle is P27.00 to P27.50.
Regarding fundamentals, we like CNPF because of (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 weak local currency impact; and (iv) robust operating cash flows and strong balance sheet.
Accumulating once CNPF breaks above P25.00 is advisable. Set Stop Limit orders below P23.75 and take profit at P27.50/P28.00. For long-term investors, our target price for CNPF is P29.00.
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