Five signs to watch in reporting season

Maple-Brown Abbott has shared the five signs that investors should watch when considering companies to buy in this market environment.

Following the end of the financial year, listed companies were now releasing their half-yearly results and annual ones to be expected soon.

Phillip Hudak, co-portfolio manager for the Maple-Brown Abbott Australian Small Companies fund, said current market fundamentals were sound despite the pullback.

“The market pullback experienced so far this year has been driven more by valuation with downside risk to future earnings expectations going forward. However, despite the negativity regarding the outlook, current market fundamentals are sound and the breadth of earnings revisions across the market doesn’t exhibit signs of any pending collapse in earnings.”

How this played out for companies was that those with low expectations that met or slightly disappointed market earnings could do well.

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Hudak said he would be watching five factors:

• Companies that were inflation beneficiaries;
• Companies with pricing power;
• Companies with defensive earning streams;
• Companies with cost-out strategies to offset slowing growth ; and
• Companies exposed to industry tailwinds.

“In addition, companies with low expectations that meet or slightly disappoint market earnings expectations may do well.  Many growth-related and consumer-exposed companies have been indiscriminately sold off and any positive news will be well received by the market,” he said.

“We believe value is emerging at the smaller cap end of the market given the indiscriminate selling across parts of the market.”