Reporting Season Standouts So Far
Nothing has really stood out this week or caught the market by surprise. Momentum continues to go the way of high growth businesses, but valuations are starting to get completely out of check. What we’re looking for at Invast is companies that haven’t reported flashy earnings, but instead building solid foundations for long term growth.
The market has become very focused on short term earnings, perhaps never this much ever. The real lack of direction in the mid cap space and a mixed economic picture in Australia has seen many fund managers just push into momentum stocks because of fear for everything this. This crowding out has basically done two things:
1) It has bid up valuations to ridiculous levels – REA, JBH, DMP are perfect examples. Good businesses, nice short term earnings but the valuation implied by the market against long term assumptions are just crazy.
2) Everything else has been discarded, if there are no short term earnings momentum drivers, the market doesn’t want to know. Particularly in the small-cap space.
This means there are some very good valuation opportunities opening up for small cap stocks. They’ll take time to materialise, but when they do, traders and investors may reap the benefits. We’re constantly screening the market for these types of opportunities – we look at the balance sheet, cashflow position and management team. We’re not too concerned with earnings or earnings growth momentum now. Rather, in the future – 3 or 5 years from now.
The trend in resources is still miserable and nothing has come out this reporting season to break that. We’re keeping a very close eye on the mining services space, but only for businesses that a priced to collapse but have a chance of surviving. We’re not interested in anything else. A private equity push in this space would be a trigger for a huge re-valuation of the sector, but that might be 12 months away. We’re watching ALQ very closely.
Nearmap is an example of something else we like. Invast clients have been given exact trading recommendations on the stock – entry and exit points. The upcoming report card is important, but it’s not earnings that we will be watching. To find out what we’re watching and how we measure success in stocks like Nearmap, you’ll need to become an Invast client.
Chief Market Analyst
Peter Esho is a member of Invast’s Investment Committee and Chief Market Analyst at Invast Financial Services in Australia. The Invast’s Investment Committee constructs professionally constructed global thematic portfolios of Direct Market Access (DMA) CFDs over highly liquid global shares and ETFs through its new PortfolioInvestor platform. Since 1960, the Invast Group has grown to become one of the largest and most successful global brokerage firms, offering state-of-the-art trading technology and unparalleled service catering to all levels of traders.
Invast Financial Services Pty Ltd (ABN 48 162 400 035) is regulated by the Australian Securities and Investments Commission and holds an AFS Licence 438283 which authorises it to carry on a financial services business in Australia.