Examine the companies in the stock exchange and make recommendation/s to your Chief Financial

Officer as to what you did think as the best company or industry to invest the majority of your company’s
portfolio.

Selection of stocks to include in the company portfolio does not only include evaluation of
individual stock performance in the stock market. The process also includes, among others: (1) identifying
the goals and objectives of the organization in investing in the stock market, whether for short-term
fluctuations of value or the appreciation of the stocks in the long run; (2) the level of tolerable risk of the
organization, (3) the overall theme of the stock portfolio – diversified or focused on a small section of the
market, and (4) the timing of the acquisition and disposal of the stock portfolio.
Considering the objective of the Chief Financial Officer is the long-term appreciation of the
company’s excess capital, the first recommendation to be made is to select from the stocks considered as
‘blue chip stocks’. Blue chip stocks are shares of very large and well-recognized companies with a long
history of sound financial performance. For the Philippine stock market, blue chips are those comprising
the PSE index (PSEi) and those with the higher market capitalization. For blue chip stocks, I would
recommend investing on Ayala Corporation (stock code: AC) being a holding company with diversified
business portfolio in banking (BPI), real estate (ALI), and utilities/water distribution (MWC). In addition,
Ayala manufactures and sells passenger cars as well as having operations in the food and agriculture
industries. Looking into the stock performance of Ayala Corporation, it is considered as a low volatile
stock, which translates into better risk-adjusted returns over time (Haugen, 1975). The Ayala Corp stock
also has a sideways trend for the short-term to long-term period. Ayala Corporation’s financial ratios also
indicate a good overall financial performance for the company, with 2018 earnings per share (EPS) ratio
of 83.05 according to Bloomberg, and a 2018 price to book value ratio of 1.79 which shows that the stock
price of Ayala Corporation is not considered as overpriced based on its accounting book value. For the
second quarter of 2019, Ayala reported a P37.8 billion net income, twofold increase from a year ago due
to gains from value realization exercises in its emerging businesses. Also, the acquisitions of Phinma
Energy in 2019 and Merlin Solar Technologies, a solar solutions firm, in 2018, only add to the diversified
business portfolio of Ayala Corporation. Lastly, Ayala also seeks to take advantage of the auto sector shift
and a push towards manufacturing. This makes the stock for Ayala Corporation an attractive option for
the company’s portfolio.

Risk and the Rate of Return on Financial Assets: Some Old Wine in New Bottles, Robert A Haugen and A. James
Heins, The Journal of Financial and Quantitative, Analysis, December 1975.
Ayala Corp. profit surges to P37.8 B on
one-time gains
Published August 14, 2019, 10:00 PM

By James A. Loyola

https://business.mb.com.ph/2019/08/14/ayala-corp-profit-surges-to-p37-8-b-on-one-time-gains/

4 Key Factors to Building a Profitable

Portfolio
BY DEREK SIMON

Updated Nov 18, 2018

https://www.investopedia.com/articles/stocks/10/4-key-portfolio-factors.asp