Making the most of market conditions
Elevated stock valuations and subpar growth in a rising interest rate environment have kept investors on the sidelines over the past few weeks. And as the market enters 'confession' season, the cautious sentiment will test investors' tolerance for bad news.
If growth falls short of expectations, we would not be surprised to see some broad profit-taking.
2018 is not a year for complacent investing. The environment going forward will not be as favourable for simply buying what's worked in the past, e.g. a portfolio of growth or yield, particularly in the context of rising interest rates.
Segments of the market have been prone to over-shoot fundamentals in recent years and we think investors should stand ready to buy the dips when the inevitable bouts of market volatility hit. It is time to be more selective now.
Positive earnings news is the swing factor
Companies under our coverage universe reported solid half-year earnings, with more companies beating expectations than disappointing.
Earnings for the resources sector continued to be significant and revised higher. By contrast, expectations for bank earnings remain tepid, and the potential regulatory risk relating to the Royal Commission's inquiry into bank conduct continues to weigh on the earnings outlook.
So far positive earnings revisions since reporting season have been confined to Resources and until we see a broader scope for earnings growth the market may continue to remain directionless with some downside risk in the near term.
Market noise masks the opportunities and threats
Our recently updated High Conviction list and Model Portfolios highlights our best ideas for a market that lacks conviction.
Several names now offer much more compelling upside supported by upcoming catalysts. We nominate 13 potentially positive and negative catalysts to watch/avoid.
Positive candidates include:
Orora, Wesfarmers, Emeco, CML Group, Afterpay, New Hope Coal,
Resapp, National Tyre & Wheel, AusNet Services,Volpara and Cooper
Potentially negative candidates include:
Graincorp and AMP.
Morgans clients can access our full research note 'Australia Strategy: Upcoming Catalysts' to view the upcoming events/catalysts for each stock listed above.
Morgans clients can access the full list of upcoming stock-specific events/catalysts by viewing our latest Equity research report. If you would like more information, please contact your adviser or nearest Morgans office.
Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.