Stock market lexicon is often intriguing. Take for example, the words chowkidar and driver. The former refers to a person, or a body of persons, whose job is to never let the stock price fall below a certain point. The latter, as the name suggests, means a person who drives up the price of a certain stock.
Sometimes both roles are played by the same person, other times the roles are divided for one reason or another.
And just as stocks have a chowkidar and a driver, the market as a whole often has one of each too. At KSE these days, these roles are being played almost single-handedly by OGDC.
Fuelled by aggressive foreign buying, OGDC first drove the market to its recent high of 10,677 points by April 15 - a growth of nearly 14 percent since January 1, 2010.
Then as share prices precipitated on the floor between April 15 and June 1, OGDC stood its ground, guarding KSE-100 index, which otherwise could have easily plummeted to at least 8,700 points.
By June 1, 2010, other major stocks, whose weights were more than 1 percent at the time of writing this note, had plunged to their corresponding index level of 7,800~7,900 or 9,200~9,400 points.
OGDC, followed by FFC, however, maintained their price level at the corresponding index level of 10,400~10,500 and ~10,000 points respectively.
This means the index is skewed in favour of OGDC, and any downturn or upturn in the E&P giant can potentially swerve the market around, wherever it goes. In other words, it increases the overall beta - a measure of the markets systemic risk - of the market, with respect to OGDC.
The question then becomes, what is OGDCs price outlook?
From a trading perspective, even slight buying can lift OGDCs price up; given that roughly 70 percent of its free float has been cornered by foreign investors. But then, would a further rally be justified?
The firms median fair value currently stands at Rs125/share, with estimates ranging between a high of Rs139 and a low of Rs103, according to Thomson Reuters data.
Of the seven investment calls made by Pakistani brokers, only two suggest a uy on OGDC, and the rest advise a hold strategy. Thats because the firms stock is currently at a forward price-to-earnings multiple of 9.1x - much higher than KSE-100s multiple of 7.1x.
So, knowing that historically OGDC has mostly remained below its consensus target prices, a slide in its stock price may just be on the cards - unless of course the all-seeing analysts community jacks up OGDCs price forecast, yet again.
The analysts community has been busy revising its earnings and target price estimates for OGDC almost every other month. The E&P giants target price has been revised from Rs107/share in June 2009 to Rs125/share in May 2010, with a gradual increase every month.
However, the extent of target price revision is not fully backed by fundamentals, as earnings in the same period has been revised just slightly upwards - from Rs14.7/share to Rs15.5/share, an increase of Re0.8/share, according to Thomson Reuters data.
This presents a dichotomy, because based on average forward earnings multiples of 9.0x, the target price should have been raised by Rs6-7/share, instead of an increase of Rs18/share. So clearly, there appears to be a bullish bias in OGDCs stock price forecasts.
Whether the market will continue buying this bias or not, is another question. So far, OGDC has been flirting with its multi-month highs - one which seems to be giving a lot of resistance to the notion of further upward moves.
And, those who follow the trends know well, how continued resistance often results in a sharp fall. Plus, need one remind OGDCs lead role in the leverage-led March-2005 KSE crash.