Earnings Season: Good or bad?

PORTFOLIO POINT: The February earnings season was difficult for investors to analyse, but there were some important trends beneath the noise.

You may not have tuned in to Eureka Report’s webinar on the earnings season (held on Tuesday, March 6, at 2.30pm), although we know that more than 500 of you listened to our live session, and were lucky enough to hear the splendid recording we did with Wilson HTM asset allocation strategist Damien Klassen and Investorfirst Securities executive director Hugh Robertson.

But today, I want to draw the attention of you, the silent majority of Eureka Report members who could not make it to the session. Did you know you can hear the entire session any time you like by coming to our website? Find the audio session through the 'interactive’ tab and then enter the 'Eureka Live’ section, or simply click here. Remember, Eureka is not just a publication – it’s a full service to you, the active private investor.

At Eureka Report, we were very keen to do this webinar with two of the best analysts in the business, because like so many investors, we were fully aware it was a 'mixed’ earnings season – but what exactly did that mean?

As Rudi Filapek-Vandyck explained in these pages last week: “'¦Downward pressures on profit margins mostly outweighed the positives, previously notable growth in dividends stopped abruptly (some like AMP and IOOF were forced to cut) and those companies with enough free cash flow showed a remarkable reluctance to follow through with capital management initiatives.”

And yet, as we all know, there are strong earnings forecasts for the market in the months ahead. With the ASX 200 today hovering around 4,162 (down 1% during Wednesday’s session), many brokers are forecasting the ASX 200 to finish the year comfortably above 4,500, while some brokers (such as UBS) estimate the index could raft as high as 4950.

As you can see from the graph below – presented at the webinar by Wilson HTM’s Damien Klassen – it seems that just as the downgrades were coming through from the companies, the outlook for the ASX suddenly improved.

The outlook for miners – especially iron ore and coal majors – is clearly looking more and more difficult, as this graph (again from Damien Klassen) shows:

Yet at the same time, there is the potential for some very good upside among mining service stocks – just take a moment to study the graph from Investorfirst Securities’ Hugh Robertson below:

Our earnings season review is highly topical – that’s one of the reasons we are encouraging you to use your latest edition of Eureka Report to check out the webinar. As you will see from the website, many of our previous webinars, all presented by Alan Kohler with expert guests, are focused on perennial issues such as value investing, fixed income or commercial property. We hope you enjoy our wide spectrum of multi-media services Eureka Report now offers. Remember, it’s more than just a publication – there are constantly evolving, member-only attractions across the site.

James Kirby is managing editor of Eureka Report