February Reports: The Green Divide Is Real

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Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Feb 20 2020

Dear time-poor reader: early insights from the February reporting season mix with an emerging international trend that should have every investors' attention

In this week's Weekly Insights:

-February Reports: The Green Divide Is Real
-No Weekly Insights Next Week
-Who's The Greatest In This Country?
-Get More Out Of Your Subscription


February Reports: The Green Divide Is Real

By Rudi Filapek-Vandyck, Editor FNArena

What a difference six months makes in the share market. It's still early days for the local corporate results season in Australia but a number of positive trends are vindicating the strong buying that supported equities in January:

-companies are finding it easier to meet or beat market expectations;
-earnings estimates last week made a trend change and are now rising instead of falling.

Of course, the cynics among us can counter-argue that market expectations leading into the February reporting season were rather low. This is true, but the same observation applied to the August season last year, and that turned out the worst reporting season post-GFC for corporate Australia.

Bottom line: things are improving, without getting too carried away, also helped by the fact investors are willing to take a supportive view, as long as the financial performance doesn't fall too much behind what should reasonably be expected.

One prominent victim this month appear to be speculators with short positions. Sharp rallies in share prices of companies including Breville Group ((BRG)), JB Hi-Fi ((JBH)) and Carsales ((CAR)), often well beyond upgraded valuations and price targets post the event, suggests shorters scrambling to reduce their losses has been one of the key characteristics during the opening two weeks of this reporting season.

When speculators take a short position on a stock, they are relying on future disappointment to depress the share price to their benefit. If, however, the share price rallies instead, it might open up the prospect for sizable losses, and thus those with a short position can turn into desperate buyers at all cost instead.



The Early Numbers

Early winners this season include Mineral Resources ((MIN)), IDP Education ((IEL)), Nick Scali ((NCK)), IPH Ltd ((IPH)), Challenger ((CGF)), the aforementioned Breville Group, JB Hi-Fi and Carsales, Magellan Financial ((MFG)), Pinnacle Investment ((PNI)), ResMed ((RMD)), Goodman Group ((GMG)), CommBank ((CBA)) and, yet again, CSL ((CSL)).

Amongst the early losers we can count Blackmores ((BKL)), Synlait Milk ((SM1)), Insurance Australia Group ((IAG)), Suncorp ((SUN)), Orora ((ORA)), Downer EDI ((DOW)), IGO ((IGO)), and Treasury Wine Estates ((TWE)), Cimic Group ((CIM)), and Nearmap ((NEA)) from the pre-season.

Multiple retailers and consumer-exposed stocks have surprised to the upside. So far, the report card for resources stocks and sector contractors has been rather mixed. Sector analysts at Bell Potter point out Decmil Group ((DCG)) also issued a profit warning pre-season, alongside Downer EDI and Cimic Group.


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