fundamental and technical analysis

Basic Fundamental and Technical Analysis (Philippines Setting)

Presented by:Gerry O. Gatawa

INVESTMENT MANAGEMENT5:30-8:30

What investment is right for you?

What type of investor are you?

Some investors listen to RUMORS/ GOSSIPS

Price To Earnings

RatiosBook Value

Earnings Per Share

Balance Sheet

Cash Flows

Solvency Ratio

FUNDAMENTAL ANALYSIS

TECHNICAL ANALYSIS

INVESTMENT ANALYSIS

Fundamental Analysis Technical Analysis

Traditional economic + Business concepts = value of investment

Study of past market data such as prices + volume = predict future price movements (I.e. stocks/markets)

Examination of the above variables is called Valuation process

Proponents believe that the market’s judgment of an issue’s fundamentals are determined by supply and demand variables that are already reflected in prices.

Method of forecasting future price movements of a security based on political, environmental & other factors

View from financial statements View from charts

Best employed for long term investing Best employed for short term trading

Data utilized come out periodicallyTends to focus on a specific sector

Data utilized come out daily

INVESTMENT ANALYSIS

Fundamental Analysis Technical Analysis

Focused on what “must” happen Focused on what happens

Top Down Approach Bottom-up Approach

Considers condition affecting Economy Financial Markets Industry

Company

VALUATION PROCESS

Fundamental Analysis Technical Analysis

Works best in determining market sentiment and factor it in the creation of investment or trading decisions

Works best if all investors are logical and could separate emotions from investment decision

Will succeed if the analyst finds overlooked data in identifying undervalued securities

VALUATION PROCESS

Fundamental Analysis Technical Analysis

Technical analysis is the answer!?

Technical Analysis will improve investing?

Make sensible investment decisions

NO!

EXPECTATIONS

Should I buy today? What will the prices be tomorrow, next week or next year?

YES!AIM TO REDUCE RISKS &

IMPROVE PROFITS

DON’T AIM TO PREDICT PRICES CONSISTENTLY & ACCURATELY

A chart is a picture A picture is worth a thousand words…

or probably a thousand dollars

Technical analysts do not attempt to

measure a security's intrinsic value, but instead

use charts to identify patterns that can suggest

future activity.

Technical analysts believe that the historical performance of stocks and markets are indications of future performance.

Equally applicable on any security or tradable financial instrument (stocks, bonds, commodities,

futures, indices, mutual fund, options)

Why Do Prices Fluctuate?

MARKET PSYCHOLOGY

Each investors would have his or her own opinion about a certain security.

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Philippine Market Outlook According to Bloomberg  Philippines PSEi to

reach 10,000 in 5-7years.

Moving Average is Uptrend for the

past 5 yearshttp://www.bloomberg.com/quote/PCOMP:IND

Comparisons with Major Stock Markets

Technical Analysis of PSEi for 1 Year (August 2015-June 2016)

Resistance

Support If the support crosses over the resistance it is a “GOOD BUY” or

favorable market outlook (PSEi)

PSEi Day Range(June 28, 2016)

Minus

Philippine Market Outlook

Capital FLOWS

Europe’s Economy is

DOWN

US Economy is DOWN

Japan’s Economy is

DOWN

ASEAN Economy is UP. (will receive)

Corporations Listed in the PSEi

• Ayala Corp. (AC)• Aboitiz Equity Ventures, Inc. (AEV)• Alliance Global Group, Inc. (AGI)• Ayala Land, Inc. (ALI)• Aboitiz Power Corp. (AP)• BDO Unibank, Inc. (BDO)• Bloomberry Resorts Corp. (BLOOM)• Bank of the Philippine Islands (BPI)• DMCI Holdings, Inc. (DMC)• Energy Development Corp. (EDC)• Emperador Inc. (EMP)• First Gen Corp. (FGEN)• Globe Telecom, Inc. (GLO)• GT Capital Holdings, Inc. (GTCAP)• International container Terminal Services, Inc. (ICT)

• Jollibee Foods Corp. (JFC)• JG Summit Holdings, Inc. (JGS)• LT Group, Inc. (LTG)• Metropolitan Bank & Trust Company (MBT)• Megaworld Corp. (MEG)• Manila Electric Company (MER)• Metro Pacific Investments Corp. (MPI)• Petron Corp. (PCOR)• Robinsons Land Corp. (RLC)• Semirara Mining and Power Corp. (SCC)• SM Investments Corp. (SM)• San Miguel Corp. (SMC)• SM Prime Holdings, Inc. (SMPH)• PLDT (TEL)• Universal Robina Corp. (URC)

The Philippine Stock Exchange carefully selects top 30 companies for the PSEi following strict and expert criteria.

Therefore when we invest, we first

consider viewing those COMPANIES LISTED IN

THE PSEi

Blue Chips of the Phillipines

• Blue chips are companies that compose the Philippine Stock Exchange Index. They have a proven track record and daily trades are in high volume (for liquidity).

$25

$5

$1

Originated: Poker Game

Best Investments for 2016 in thePhilippines

Banks –  MBT, SECB, BDO

Power – FGEN, EDC, MER

Property – SMPH, MEG

Infrastructure – MPI

Board Lot of Philippine Stock Exchange

• Stock trading on the Philippine Stock Exchange is done by board lot or round lot system.  The minimum number of shares you can buy or sell depends on the market price of the stock at the time you place your order.

Price Range (Pesos) Board Lot (Min # of shares)

0.0001 to 0.0099 1,000,0000.01 to 0.049 100,0000.05 to 0.249 10,0000.25 to 0.495 10,0000.5 to 4.99 1,000

5 to 9.99 10010 to 19.98 10020 to 49.95 10050 to 99.95 10

100 to 199.9 10200 to 499.8 10500 to 999.5 10

1,000 to 1,999 52,000 to 4,998 55,000 to UP 5

Open - The first price traded for the period. An important consensus as all interested parties were able to “sleep on it”.

High - The highest price traded for the period. The point where there were more buyers than sellers.

Low - The lowest price traded for the period. The point where there were more sellers than buyers.

Close – The last price traded for the period. Most often used price for analysis. The relationship of the open and close prices is considered most significant by technicians.

BASIC MARKET TERMINOLOGIES

Volume – The number of shares traded during the period.

Bid – The price a buyer is willing to pay

Ask – The price a seller is willing to accept

BASIC MARKET TERMINOLOGIES

Short Market Info: PSE has two trading floors, one in Makati City and another in its head office in

Pasig City. Despite having two floors, PSE maintains a "one-price, one-market" exchange

through its MakTrade System, a single-order-book system that tallies all orders into one computer and ensures that these orders match with the best bid/bestoffer regardless of which floor the orders were placed.

BASIC FUNDAMENTAL ANALYSIS TOOLS

Price Earnings RatioEarnings per shareIncome Statement, Balance Sheet,

Cash FlowLiquidity, Solvency, Profitability

RatiosBoard of Directors/ CEOEnvironmental Scanning

Double Dragon Properties(Fundamental Analysis—Price Earnings Ratio)

Day Performance

1 Year Range

Yesterdays Closing Price

Day Range

Double Dragon Properties (Ticker: DD)(Fundamental Analysis—Price Earnings Ratio)

Take Note: The P/E Ratio is high, which means the stock is

overpriced.

Rule: High P/E ratio means the stock is expensive. Benjamin Graham said buy stocks with

less than 20 P/E ratio

You are willing to PAY this at

Php. 60.80.Assessment: NOT HEALTHY

DD: Compared in the same industryDouble Dragon’s market capitalization is Php143.8b, already surpassing RLC’s (Robinsons Land) market cap of Php122.2b and MEG’s (Megaworld) Php143.5b. Out of the 300+ companies listed in the PSE, DD is already the 26th highest in terms of market capitalization. Against other property stocks in the PSEi, table below presents how the stock fares against its industry peers by end 2016:

Del Monte Pacific Ltd. (Ticker: DMPL)(Fundamental Analysis—Income Statement)

Higher Asia sales

Net income of $51.5m in FY ending April 30, 2016, a reversal from $43.2 loss booked the previous year.

Better Sales and cost optimization

BUY:

Ayala Corporation (Ticker: AC)(Fundamental Analysis—Solvency Analysis)

Ayala (AC) to issue Php10b bonds next week

• AC plans to issue next week the first tranche of bonds totaling P20b under its recently approved shelf registration program. The bonds will have an interest rate of 3.92% per annum and mature in seven years

DEBT-TO-ASSET = = 0.5964

DEBT-TO-EQUITY = = 1.4778

(465,530,740,000+ 20,000,000,000)

(794,074,723,000+ 20,000,000,000)

(465,530,740,000+ 20,000,000,000)

(328,543,359,000)

There is a greater claim (>50%) of creditor over the assets and a greater

provided capital by creditors than

stockholders (owners). There is RISK of INSOLVENCY

Integrated Micro-Electronics Inc. (Ticker: IMI)(Fundamental Analysis—Management Analysis)

Ayala-owned Integrated Micro-Electronics Inc., is appointing of Gilles Bernard as its new president. He will replace Arthur Tan as president but Tan remains as the CEO and was recently appointed vice chairman of Ayala Automotive. Bernard, on the other hand, will be more involved in the day-to-day operations as IMI grows its international business.

Global Stock Indices(Fundamental Analysis—Environmental Analysis)

Meanwhile, here in the Philippines, most investment analyst assessed that the impact of a ‘Brexit’ may be minimal for us, since we’re a consumption-driven economy, and our exposure to the UK is insignificant. External trade accounts for only a small portion of the economy and the Philippines is not too prone to external headwinds that such an event would bring.

No direct Brexit impact on Philippine credit rating – Fitch (July 1, 2016)

Global Stock Indices(Fundamental Analysis—Environmental Analysis)

President-elect Rodrigo Duterte has appointed Regina “Gina” Lopez to head the Department of environment and Natural Resources (DENR), which oversees the country’s mining industry. Mining and oil shares tumbled, following the announcement that Lopez accepted the post. Lopez is known to be an anti-mining advocate, a trustee of the Lopez Group Foundation, Inc., and chairman of the ABS-CBN Lingkod Kapamilya Foundation, Inc.

ABIDE WITH THE LAW

BASIC TECHNICAL ANALYSIS TOOLS

BetaMoving AverageResistance and SupportReversal PatternsHistorical Trends

MegaworldBeta: 1.71

CHART TRENDS CHANNELS & LINESPlotting Support & Resistance

CHART TRENDS CHANNELS & LINESEstablishing Trends (channels & range)

CHART TRENDS CHANNELS & LINESEstablishing Trends (channels & range)

The more times a trend line is tested, the more significant it becomes

CHART TRENDS CHANNELS & LINESTrend Acceleration or Deceleration

Angle of trends:

WeakHealthyOverheated

CHART TRENDS CHANNELS & LINESWhen resistance is broken, it becomes the new supportAnalysis: BUY SIGNAL

CHART TRENDS CHANNELS & LINESWhen support is broken, it becomes the new resistanceAnalysis: SELL SIGNAL

CHART TRENDS CHANNELS & LINESIdentifying trends, breakouts & breakdowns

Trend Plotting Exercise

Double Dragon Chart

Megaworld Chart

SMPH Chart

ALI Stock Chart

RLC Stock Chart

Globe Stock Chart

CHART PATTERNS & FORMATIONSReversal Patterns

Rounding Bottom

Saucer Top

CHART PATTERNS & FORMATIONSReversal Patterns

Double Bottom

Double Top

CHART PATTERNS & FORMATIONSCandlestick Continuation Patterns

Three White Soldiers Three Black Crows

CHART PATTERNS & FORMATIONSCandlestick Reversal Patterns

Bullish Engulfing Bearish Engulfing

CHART PATTERNS & FORMATIONSCandlestick Reversal Patterns

Bullish Harami Bearish Harami

MBT: Metropolitan Trust BankTechnical Analysis

Please observe the 5-year moving

average.UPTREND

BUY SIGNAL: The SUPPORT crosses over RESISTANCE

SECB: Security BankTechnical Analysis

Please observe the 5-year moving

average.UPTREND

BUY SIGNAL: The SUPPORT crosses over RESISTANCE

BDO: BDO Unibank, Inc.Technical Analysis

Please observe the 5-year moving

average.UPTREND

Obviously:

GOOD BUY for long-term but maybe

slow growth in the short-term

FGEN: First Gen CorporationTechnical Analysis

Observe the HISTORICAL REPITITION.

SPECULATIVE

Observe the REVERSAL PATTERN

EDC: Energy Development CorporationTechnical Analysis

The stock give a very volatile performance. VERY SPECULATIVE

Observe the REVERSAL PATTERN

EDC: Energy Development Corporation 6 Months Technical Analysis

From RED to BLUE

Creating a REVERSAL PATTERN

MER: Manila Electric CompanyTechnical AnalysisObviously:

GOOD BUY for long-term and fast

growing in the short-term

MER: Manila Electric Company1 Month Technical Analysis

SMPH: SM Prime HoldingsTechnical Analysis

Continuous UPTREND but maybe slow

growth.

MEG: MegaworldTechnical Analysis

Continuous UPTREND and fast

growth in the short-term.

MEG: MegaworldFundamental Analysis SPG

New Forecast: Megaworld Stock Price to Hit P9 Per Share

Prior Forecast:

MPI: Metro Pacific Investments CorpTechnical Analysis

Continuous UPTREND and fast

growth in the short-term.

Video

MPI: Metro Pacific Investments Corp1 Day Technical Analysis

Rank three (3) (from first to last) of the following that you love/like most. If none on the list you may include others.

Money

Family

Spiritual Beliefs

Children

Pursuing studies/

education

Material Wealth

Work/ Job

Country

Traveling

Husband/ Wife

Boyfriend/Girlfriend

Business

Comfortable life

Friends

Time

Profession

Movies

Health

Colleagues/Workmates

Physical appearance

Places

Reputation

Neighbors

Food

Cellphone

Music

Freedom

Vice

Personal things

Play

• Contribution to the economy, to society and to national development

• Contribute to national development

(Bridges, roads, railroads, airports, seaports, mass-transport systems, communication systems etc.)

• Contribute to entrepreneurial development(Micro-finance programs, livelihood projects, cottage industries, etc.)

National Benefits of Investment

Only 25 percent of Filipino adults are financially literate by Standard & Poor’s (S&P) Ratings.

Only 640,665 is investing in the stock market. That number came from the Stock Market Investor Profile report of the PSE. It’s not even 1% of the country’s population

Source: http://www.manilatimes.net/only-25-of-filipinos-financially-literate-sp/232428/

If you love your country, YOU MUST INVEST.

Philippine Corporate News• MER’s energy sales may grow 6-7% this year• AP’s SN Aboitiz planning for up to 500 MW in additional capacity

within 7 years• GTCAP selling P12-b perpetual preferred shares• COSCO boosts capital spending this year• CAL investing P650 M on data-driven farming practices• MBT raising P20b from LTNCD issue• BLOOM sells casino venture in Korea• MEG subsidiary GERI to spend additional P5b on hotels• CHIB ventures into stock brokerage• FNI sees 20% more nickel output• Cemex pegs record IPO price at P10.75/share

Helpful Online Referenceshttp://www.bloomberg.comedge.pse.com.ph

Thank you and enjoy the

rewards of investing!