MER – Selloff Unwarranted Because of Oil?

  • Bought 13,280 shares of MER
  • Oil effect on a distribution company?

MERALCO, one of the longest standing and resilient companies in the Philippines. So resilient, it has survived World War II, Martial Law and People’s Power Revolution. And it was a pleasant surprise when yesterday, there was a selloff because of… OIL.

Honestly, I still don’t know what happened to MER why it went on to a selloff like that. I’m not even sure if its really oil. I don’t want to speculate, and I even search the web for news and looked at its filings and still couldn’t figure out why MER was falling. Could this be a sign for darker times ahead? And even if its oil, Meralco is a distribution company. I don’t think that oil would matter much in terms of power generation. I’ll just credit Mr. Market for that.

At the current price if bought yesterday, that was around 6% dividend yield. With an earnings yield of around the same 6%. Growth of this company seems to follow the GDP growth of the Philippines at 5 to 6%.

Why Buy?

Meralco has a competitive advantage much like a monopoly. Its like a monopoly but it really isn’t. Just a monopoly at certain geographic locations and some parts of the country are serviced by other power distribution companies. Its highly regulated. Its big and its boring. Growing at only 5% annually. I’m sure most investors can find investments with better growth than that. But I do like companies that gives out dividends. And the opportunity yesterday is a good chance to up my stake in MER.

Bought 13,280 shares of MER at P282/share (on average). The last known significant price was at 230 – 270. This was the price in which PLDT sold its Meralco shares. I figured that going near that price is a good enough price for me. Seems like the market agreed with me, with an instant rebound back to P314/share.

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