Small (Cap) Wonders – Part 2, Don’t Be Afraid!
Last week I wrote about why small is beautiful. Please read - http://bigbigtrade.blogspot.com/2006/10/small-cap-wonders-why-small-is.html .
What is good for BPC/DGTL is good for small-caps
I am glad to see the small-caps that I recommended have moved up except for Ionics – (ION – P2.02). I guess it is obvious that the play will shift to these counters. Liquidity flow to these counters is very encouraging. Based on my estimate, roughly 30% of the average daily value turnover of the market has shifter to small-caps. What is also obvious is that Benpres – (BPC – P1.46) and Digitel (DGTL – P1.50) have emerged as the small cap leaders. Note that for the past weeks, Benpres never traded below US$1.0m per day.
As a gauge, investors have to closely watch the movement of Benpres and Digitel in deciding when to unload their small-cap holdings. However, I do believe that both stocks still have a lot of room to move. So, the play is certainly not yet over.
Don’t be afraid
Don’t be afraid. Small-caps are generally more volatile than the other counters. So there will be some “whip-saws” along the way but I firmly believe that prices are still on an uptrend. If you are a good trader, you can certainly trade the ranges. However, if you are willing to wait, I guess sitting tight might be the best thing to do.
Also, I have seen certain cautiousness with the way the prices of small-caps are behaving. I received several emails asking me when to sell. This is good; since it suggests that the exuberance factor has not yet been priced in. Normally, I would sell when there is excessive optimism.
Value creating market
It is also quite clear that we are in a value creating market. This means that money flow will continue to seek undervalued stocks. As I mentioned earlier, a lot of counters are still priced at “crisis” valuation. This will not hold for long. Eventually, stocks that have weathered the crisis and have 100% chance of survival will trade at its proper value. I don’t think the liquidity flow that we are seeing right now will dry-up soon. If at all, we should see further improvement. Note that in 1996, the average value turnover was at P2.6bn per day equivalent to US$100m based on P26.0 : US$1.0 exchange rate. For us to approximate that amount, we should be doing P5.0bn. This implies that liquidity is still has room to grow.
Finally, my take on DGTL and ION
Two stocks that have propped up from my users are ION and DGTL.
For ION, I guess it is a matter of time before we see the stock trade back to its recent high of P2.80. I have confidence in the stock. I do believe that it has indeed weathered the crisis and has a 100% chance of survival. From a salvage value scenario, investors should look at ION on a continuing basis. I cannot speculate how the market will value ION. However, based on my own computation, the stock is worth P4.20 per share. Please check my past post on ION - http://bigbigtrade.blogspot.com/2006/06/ionics-ion-p216-looks-to-turnaround.html
On DGTL, I really do not like the stock simply because the fundamentals do not add up. I guess it will take a lot more resources to take market-share away for Smart, Talk+Text and Globe. What DGTL can offer, the three other networks can easily match or even do better. Note that communication has already been commoditized. The sector is faced with declining revenue per unit environment. So DGTL is faced with a tougher market condition moving forward. As a fringe player, I do not see how DGTL can create a ripple.
Having said that, it does not mean that the share price of DGTL will not go up. It is obviously on an uptrend. From the grapevine, there are talks that a pending deal is about to be forged and the whisper price is P2.50/share. Heck –in this market; there are a lot more stocks that can do better and will make you sleep better at night. So why bother.
What is good for BPC/DGTL is good for small-caps
I am glad to see the small-caps that I recommended have moved up except for Ionics – (ION – P2.02). I guess it is obvious that the play will shift to these counters. Liquidity flow to these counters is very encouraging. Based on my estimate, roughly 30% of the average daily value turnover of the market has shifter to small-caps. What is also obvious is that Benpres – (BPC – P1.46) and Digitel (DGTL – P1.50) have emerged as the small cap leaders. Note that for the past weeks, Benpres never traded below US$1.0m per day.
As a gauge, investors have to closely watch the movement of Benpres and Digitel in deciding when to unload their small-cap holdings. However, I do believe that both stocks still have a lot of room to move. So, the play is certainly not yet over.
Don’t be afraid
Don’t be afraid. Small-caps are generally more volatile than the other counters. So there will be some “whip-saws” along the way but I firmly believe that prices are still on an uptrend. If you are a good trader, you can certainly trade the ranges. However, if you are willing to wait, I guess sitting tight might be the best thing to do.
Also, I have seen certain cautiousness with the way the prices of small-caps are behaving. I received several emails asking me when to sell. This is good; since it suggests that the exuberance factor has not yet been priced in. Normally, I would sell when there is excessive optimism.
Value creating market
It is also quite clear that we are in a value creating market. This means that money flow will continue to seek undervalued stocks. As I mentioned earlier, a lot of counters are still priced at “crisis” valuation. This will not hold for long. Eventually, stocks that have weathered the crisis and have 100% chance of survival will trade at its proper value. I don’t think the liquidity flow that we are seeing right now will dry-up soon. If at all, we should see further improvement. Note that in 1996, the average value turnover was at P2.6bn per day equivalent to US$100m based on P26.0 : US$1.0 exchange rate. For us to approximate that amount, we should be doing P5.0bn. This implies that liquidity is still has room to grow.
Finally, my take on DGTL and ION
Two stocks that have propped up from my users are ION and DGTL.
For ION, I guess it is a matter of time before we see the stock trade back to its recent high of P2.80. I have confidence in the stock. I do believe that it has indeed weathered the crisis and has a 100% chance of survival. From a salvage value scenario, investors should look at ION on a continuing basis. I cannot speculate how the market will value ION. However, based on my own computation, the stock is worth P4.20 per share. Please check my past post on ION - http://bigbigtrade.blogspot.com/2006/06/ionics-ion-p216-looks-to-turnaround.html
On DGTL, I really do not like the stock simply because the fundamentals do not add up. I guess it will take a lot more resources to take market-share away for Smart, Talk+Text and Globe. What DGTL can offer, the three other networks can easily match or even do better. Note that communication has already been commoditized. The sector is faced with declining revenue per unit environment. So DGTL is faced with a tougher market condition moving forward. As a fringe player, I do not see how DGTL can create a ripple.
Having said that, it does not mean that the share price of DGTL will not go up. It is obviously on an uptrend. From the grapevine, there are talks that a pending deal is about to be forged and the whisper price is P2.50/share. Heck –in this market; there are a lot more stocks that can do better and will make you sleep better at night. So why bother.
posted by jack galt at
6:18 PM
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