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Prefer low valuation, high dividend yield stocks

The market is expected to continue its momentum after closing above 8,000 for the first time this year and the ideal stocks to buy are those with low valuation and high dividend yield.

First Metro Investment Corp. (FMIC) Head of Investment Banking Group Justino Juan Ocampo said amid the volatility in the market, investors must be very, very picky in terms of choosing the stocks to buy.


As for the most preferred stocks, FMIC Head of Research and Assistant Vice President Cristina Ulang said companies with low valuation and pay high dividend yields would still be the ideal stocks for market participants.

Ulang said companies that give good dividends are Manila Electric Co., Semirara Mining and Power Corp., Aboitiz Power Corp., and Aboitiz Equity Venture, Inc.

For those with low valuations such as Metropolitan Bank and Trust Company (Metrobank) are still considered undervalued.

“Some stocks are still undervalued despite the rally in the market. For instance, in the banking sector, we find Metrobank undervalued,” Ulang said during the company’s market briefing.

Luis Limlingan, business development head at Regina Capital Development Corp., for his part, advised investors to take profits on the stocks that were overbought.

“We advise taking profits on positions trading at overbought conditions as these issues have a bigger chance of reversing this week,” Limlingan said.

“Like last week, issues trading near/at their respective support are considered strong buys for the week, provided no technical divergences are spotted,” he added.

Ulang also said that investors could also choose among companies with double digit earnings growth and strong balance sheet.

For this week, the market is expected to trade higher and somehow continue its momentum from last week when it closed above the level of 8,000 for the first time since April last year.

“We expect the PSEi [Philippine Stock Exchange index] to trade higher this week as no overbought signals have been spotted yet. However, we advise a more careful approach, especially on accumulating positions, as the lack of significant pullbacks increases the probability of a downward reversal based on weaker momentum readings week-on-week,” Limlingan said.

The PSEi on Friday surpassed the 8,000-point level, posting its highest close for the year at 8,030.06, up by 73.92 points or 0.9 percent.

“While Asian markets, including ourselves, benefitted from positive news abroad, moving past the 8,000 level shows that investor confidence in our market remains high, and provides some early momentum as companies prepare to disclose their mid-year earnings results in the coming weeks,” PSE President and Chief Executive Officer Hans B. Sicat said.

Year-to-date, the stock market index is up by 15.5 percent.