Four trends from reporting season
There have been four key observations from the latest reporting season, according to Swell Asset Management.
Firms on the Australian Securities Exchange (ASX) had been reporting their half-year results for the first half of 2022 over the past two weeks while US firms had reported Q4 results.
Swell found the four key themes were:
- The extremely limited ability of governments, businesses and consumers to tolerate higher interest rates, due to ballooning debt;
- The increasingly important role of technology to drive productivity, particularly among older workers;
- The bifurcation of good tech and bad tech; and
- The predictable nature of quality companies.
While interest rates and inflation were top of the agenda, Swell Asset Management chief investment officer, Lachlan Hughes, said they should not be the primary factor for investors. Instead, it was more important to focus on fundamental value.
“Amidst the volatility and noise, fundamental value is crucial because companies that provide high quality sought-after goods and services will perform strongly in the long term regardless of whether inflation is 2% or 8%.
“Some things in life can be objectively predicted with reasonable certainty, such as which companies will lead in search or dominate cloud. Other things, like the direction of interest rates, are subjective and rely on factors that can’t be known in advance.
“Investors should look for attractive companies that they want to own for the long-term and aim to buy them at a discount to their intrinsic value.”
The comments regarding technology also created opportunities for technology companies to support businesses to improve productivity.
Hughes said: “Technology companies have benefited from greater institutional and retail attention, reflecting the significant growth of technology spend as a percentage of GDP, however, as inflation rises and fears about valuations climb, investors have responded by savaging technology companies.
“Unfortunately, good tech companies - characterised by strong earnings and attractive multiples - have been treated much the same as bad tech companies which have had their share price bid up to historic highs, off the back of overly-optimistic expectations of a potentially rosy future.”
AUTHOR
Laura Dew
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