Tuesday, May 11, 2010

Stock Pick: PLDT (again!) because of Philippines elections


Slightly over a year ago, I predicted that a long term hold on PLDT was wise.  It is trading as ticker symbol PHI on NYSE.

Back then, it was priced at $46.95 a share.  It was roughly $60.34 one year later.  Not counting the extra dividends, let me break it down if someone bought 1000 shares during that year to year period.  The $46,950 investment would net  $60,340, or a $13,390 profit in roughly a one year period.  In short, a 28.5% annualized return on investment.

But why PLDT again?

But why am I highlighting PLDT again?  The stock price is now around ~$55 USD.  Isn't it too expensive?   In my opinion, it's cheap.  Aside from their performance and monopoly-like control in all things related to communications, their stock price is dependent on the following:

  • The Philippines' geopolitical stability.
  • Strength of the peso.
The Philippines election and geopolitical stability
There is increased likelihood that the peso (and subsequently PLDT's stock price) will continue to strengthen because the Philippines presidential election was successfully held and a pro-business candidate was elected.

Strength of peso, falling dollar, the blessings of OFW
Despite the recession last year where the U.S. had a -2.4% GDP and Southeast Asian neighbors like Malaysia had a -2.8% GDP, the Philippines managed to inch out in the positive territory with 0.9% growth.  

Most analysts familiar with the country's dynamics can point to a high number of overseas foreign workers (OFW) that remit billions of dollars a month as the key success factor in keeping the economy afloat.  Almost 20% of the Philippines' working population is overseas. 

Morgan Stanley and other analysts are estimating that this year, the country will have a $4 billion surplus in its balance of payments,a record of all monetary transactions between a country and the rest of the world.  This surplus, in a global economy that's still recovering, is a huge indicator that the peso will continue to rise against other currencies.

In short, with all things considered, the Philippines and subsequently, PLDT, look like they have bright futures ahead.