Since Monday, I was eagerly shopping for a nice buy in the Philippine Stock Market hoping to obtain the lowest price asset in its downtrend. Some colleagues would often ask me what am I busy about but I just refuse to answer because I did’t want to shift my focus to other things than the stock. And just this morning, I believe I have found what I’ve been looking for – the Philex Petroleum Corp (PXP:PM).
Just a little background, it is an oil exploration company owning participation interests in several service contracts in the Philippines (Source: Bloomberg). It is a 64.79%-owned subsidiary of Philex Mining Corporation, a mining corporation and a pioneer in oil and gas exploration in the Philippines (Source: BPI). Therefore, one of its board members is Manny V. Pangilinan and for that reason why I have more confidence in choosing PXP despite losses incurred for the past 2 years. In fact, the significant drop in price per share could have been due to this sequential losses. I only have faith that they’ll bounce back.
So what really made me decide to buy stocks in PXP?
Well, I actually knew few fundamental things about stock trading because I’m still learning all the other stuff about it. So please bear with my analysis and if you have feedback to share, please don’t hesitate to drop a comment. Anyway, in looking at assets to buy, the first thing I check is how low the stock price could have been and how high is its potential to grow in 52-week timeframe versus the current market price. Through this, I will easily identify if the current market price is low enough to be bought. In the same way, I will easily compute the potential profit from it by looking at how high the growth could possibly be.
In the screenshot above (from Bloomberg), PXP’s lowest price per share in 52-week range is PHP 1.88 while its potential could grow to as high as PHP 10.42. The current market price is ranging from PHP 1.95 to PHP 2.11 as of April 17, whispering to my ear to buy stocks at this lower range. Whereas the selling point here is possibly in between of that 52-week range. Therefore, in case the price per share of PXP grew to, let’s say, PHP 5.00 and you bough the stock for only PHP 2.00, you’ll have 150% return on investment in less than a year.
So how do I know that the price per share will go up when the trend continuously drop?
The screenshot above is the 52-week month-on-month chart of PXP which obviously shows a significant downtrend in price per share. However, looking at the Relative Strength Index (RSI) of the asset, it actually shows that the demand for it goes higher making it marked ‘Oversold’. And as far as I understand the concept of RSI, it helps determine when a stock price will go up and down (though, of course, there are a lot of forces to consider). When an asset is said to be ‘oversold’, there’s a greater chance of correcting its price, as in a tendency to make it higher than the current one to match with the current demand. Just think of the concept of supply and demand; when demand goes up with low supply, most likely, the price goes up, ceteris paribus. Similarly with PXP, I believe that the high demand to this asset will later on turn the current market price into huge win!
And I am willing to wait for that moment to come. So help me God.