Presented by: Renzie Doem R. Agutaya Summit Securities, Inc. - Bacolod What is an investment? An asset or item purchased with the hope that it will generate income or appreciate in price in the future Example of investments are: 1. Real estate 2. Paintings 3. Antiques 4. Collectibles 5. Stocks What is stocks? Stocks are shares of ownership in a corporation. When you buy stocks of a publicly listed company, you become a part-owner of that company. As an owner, you participate in that company’s growth and future profits. Conversely, you may also lose if the company suffers a loss or performs below expectations. How to make money in stock investing? 2 ways to make money is the stock market: 1. Dividends (income) – Dividends increase as companies that own the shares increases income generated. 2. Capital appreciation – Prices of stocks increase if EXPECTED income of the company owning the stocks increase GAMBLING in the stock market – when a stock is purchased without considering the factors above PHILIPPINE STOCK EXCHANGE (PSE) A marketplace in which 260 publicly listed stocks are traded. Trading on the PSE trading starts at 9:30 am and ends at 12:00 pm, pauses for a 1 hour 30 minute break, and resumes trading from 1:30 pm to a 3:30 pm session closure. To whom is stock investing for? To those who desire to grow their EXTRA cash To those who desire to monetize what they know To those who enjoy learning new things To those who love the never ending journey of learning To those who enjoy talking about ideas To those who love a rewarding mental exercise To those who wish to improve his/her outlook in life To those who enjoy living life How to Get Started in Stock Investing? I. II. III. IV. V. VI. Set aside cash (enough to keep your emotions out of the stock market) Find a broker Selecting and buying your first stock When to SELL? Review your holdings Q&A Set aside cash Pay all your debt Set aside cash as emergency fund (6 month worth of salary) Doing the tasks above will free you form any emotion in stock investing Find a broker 2 types of broker Traditional 2. Online brokers – Citiseconline, BPItrade, Firstmetrosec 1. Things to consider in selecting a broker: You are COMFORTABLE doing business with 2. Commission rate 1. Selecting and buying your first stock Great story – investment theme a. What are upcoming trends? b. What adds value? 2. Great company a. How is the management? b. Market leader? c. Strong consumer for products produced? 3. Cheap 4. Why did the opportunity exist? 5. When to SELL? 1. Sample case Jollibee Foods Corporation (2008) Great story – Jollibee Foods Corporation (April 2008) Remittances abroad kept on growing (13% in 2007) You expect the Philippine economy to grow based on 7.3% increase in GDP on 2007 You expect this economic growth will increase consumer spending Great company Owns Chowking, Greenwich, and Jollibee You observed that their restaurants are often full You personally like their products People YOU KNOW like their products Management were not involved in any rumors of bad management practice Market leader Cheap Cheapness is determined by the following metrics: a) Price to earnings ratio b) Price to book value ratio c) Comparing it with competitors Price to earnings ratio = Stock price / Diluted EPS Price to book value ratio = Stock price / Book value Book value = Common stockholders equity / outstanding shares Putting it all together JFC 2007 Price (4/20/08) (a) Equity (b) Outstanding shares (c) PCKH 2007 47 10 12,642,928,847 516,554,830 1,015,437,732 192,636,364 Book value (BV) [b / c] (d) 12.45 2.68 Diluted Earnings per share (EPS) (e) 2.341 0.28 3.77 3.73 20.08 35.71 Price to book value [a / d] Price to earnings ratio [a / e] Cheap Price to book value ratio Price to earnings ratio Jollibee Foods Pancake House 3.77x 3.73x 20.08x 35.71x Why did the opportunity exist? PCKH is growing 30% in revenues due to acquisition while JFC grows 14% JFC PCKH 2008 - 2009 (1 year) 1% 0% 2008 - 2011 (3 year) 108% -12% 2008 - 2013 (5 year) 166% 15% When to SELL? Determine the target price: • Maximum target price (2.341 x 35): P81.93 upside of 72% • Desired target price 50% gain: (47 x 1.50) P70.50 OR when the reason you purchase the stock no longer stands My stock pick – First Gen Corporation (FGEN) (Disclaimer: not a recommendation to buy) Great story Strong electricity demand Electricity demand expected to grow as the Philippine economy grows Great company Source all of its revenues from electricity generation Has a contract to sell electricity produced to Manila Electric Company (Meralco) Passes incremental costs to electricity consumers thus maintaining profit margin Cheap Price to earnings ratio = Stock price / Diluted EPS Price to book value ratio = Stock price / Book value Book value = Common stockholders equity / outstanding shares Cheap Company Aboitiz Power (AP) Energy Development Corporation (EDC) Alsons Consolidated Resources (ACR) Trans-Asia Oil and Energy Dev't Corp. (TA) First Gen Corp (FGEN) Current price (1/23/14) PE ratio BV multiple based on '12 BV 37.00 11.14 3.35 5.39 11.72 3.03 1.31 16.38 0.91 1.98 20.43 1.38 15.96 7.29 0.84 Why did the opportunity exist? A fire incident happened at the San Lorenzo Power Plant which burnt their 250MW transformer FGEN’s 49% subsidiary was damaged severely by Yolanda In my opinion, electricity demand will likely to grow in the future and that FGEN’s earnings will “normalize” in the next year or two. When to SELL? Determine the target price: Maximum target price (2.19 x 11): P24.09 upside of 50% Desired target price 20% gain: P19.15 Review your holdings 1. Annual Reports or SEC form 17 – A (www.pse.com.ph) 2. News papers 3. Your current connections 4. Your own observations Annual Reports or SEC form 17 – A Recommended sites to learn stock investing http://www.oldschoolvalue.com/blog/ (highly recommended) http://www.pseacademy.com.ph Fundamentalenthusiast.wordpress.com END Thank you!