Stock Investing Basics

Stock Investing BasicsPresented by: Renzie Doem R. AgutayaSummit 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:Real estatePaintingsAntiquesCollectiblesStocks

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 companys 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:Dividends (income) Dividends increase as companies that own the shares increases income generated.Capital appreciation Prices of stocks increase if EXPECTED income of the company owning the stocks increaseGAMBLING in the stock market when a stock is purchased without considering the factors abovePHILIPPINE 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 cashTo those who desire to monetize what they knowTo those who enjoy learning new thingsTo those who love the never ending journey of learningTo those who enjoy talking about ideasTo those who love a rewarding mental exerciseTo those who wish to improve his/her outlook in lifeTo those who enjoy living lifeHow to Get Started in Stock Investing?Set aside cash (enough to keep your emotions out of the stock market)Find a brokerSelecting and buying your first stockWhen to SELL?Review your holdingsQ & A

Set aside cashPay 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 broker2 types of brokerTraditionalOnline brokers Citiseconline, BPItrade, Firstmetrosec

Things to consider in selecting a broker:You are COMFORTABLE doing business withCommission rateSelecting and buying your first stockGreat story investment themeWhat are upcoming trends?What adds value?Great companyHow is the management?Market leader?Strong consumer for products produced?Cheap Why did the opportunity exist?When to SELL?Sample caseJollibee 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 2007You expect this economic growth will increase consumer spending

Great companyOwns Chowking, Greenwich, and JollibeeYou observed that their restaurants are often fullYou personally like their productsPeople YOU KNOW like their productsManagement were not involved in any rumors of bad management practiceMarket leader

CheapCheapness is determined by the following metrics:Price to earnings ratioPrice to book value ratioComparing it with competitors

Price to earnings ratio = Stock price / Diluted EPSPrice to book value ratio = Stock price / Book valueBook value = Common stockholders equity / outstanding shares

Putting it all togetherJFCPCKH20072007Price (4/20/08) (a)4710Equity (b) 12,642,928,847 516,554,830 Outstanding shares (c) 1,015,437,732 192,636,364 Book value (BV) [b / c] (d) 12.45 2.68 Diluted Earnings per share (EPS) (e)2.3410.28Price to book value [a / d] 3.77 3.73 Price to earnings ratio [a / e] 20.08 35.71 CheapJollibee FoodsPrice to book value ratio3.77xPrice to earnings ratio20.08xPancake House3.73x

35.71xWhy did the opportunity exist?PCKH is growing 30% in revenues due to acquisition while JFC grows 14%JFCPCKH2008 - 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 storyStrong electricity demandElectricity demand expected to grow as the Philippine economy grows

Great companySource all of its revenues from electricity generationHas a contract to sell electricity produced to Manila Electric Company (Meralco) Passes incremental costs to electricity consumers thus maintaining profit margin

CheapPrice to earnings ratio = Stock price / Diluted EPSPrice to book value ratio = Stock price / Book valueBook value = Common stockholders equity / outstanding sharesCheapCompanyCurrent price (1/23/14)PE ratioBV multiple based on '12 BVAboitiz Power (AP) 37.00 11.14 3.35 Energy Development Corporation (EDC) 5.39 11.72 3.03 Alsons Consolidated Resources (ACR) 1.31 16.38 0.91 Trans-Asia Oil and Energy Dev't Corp. (TA) 1.98 20.43 1.38 First Gen Corp (FGEN) 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 transformerFGENs 49% subsidiary was damaged severely by Yolanda

In my opinion, electricity demand will likely to grow in the future and that FGENs 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: P19.15Review your holdingsAnnual Reports or SEC form 17 A (www.pse.com.ph)News papersYour current connectionsYour own observationsAnnual Reports or SEC form 17 A

Recommended sites to learn stock investinghttp://www.oldschoolvalue.com/blog/ (highly recommended)http://www.pseacademy.com.phFundamentalenthusiast.wordpress.com

ENDThank you!