• Heading into February results, we examine key strategic themes across earnings trends, the cyclicals rotation, yield security, rising AUD impacts and resources.
  • In our Reporting Season Playbook (accessible by Morgans clients) our analysts preview the results for 184 stocks under coverage that report this February, calling out potential surprise and disappoint candidates.
  • Key tactical trades into results include Sonic Healthcare, NextDC, Origin, Zip Co, Eagers Automotive, and Virtus.

Dampened expectations leave room for upside surprise

Investors have a lot to feel optimistic about as the economy continues to defy expectations (our chief economist Michael Knox is calling for a sharp V-shaped recovery) but analysts’ earnings and dividend forecasts are yet to capitalise the recent good form.

We think there is a risk of surprise in company results that have significant leverage to the recovery.

Domestic cyclicals outperforming overly fearful market expectations was a dominant theme in August and analyst previews of the 184 stocks under Morgans coverage suggest this trend will continue in February.

Our analysts expect that 28% of stocks covered have reason to respond positively to February results.

Various moving parts requires careful portfolio positioning

Investors need to position tactically into February results. Overall, we expect outlook commentary to be better than what was provided in August and we think the outlook for dividends has improved markedly.

But while the recent good form in the economy will benefit segments of the market (retailers, banks, resources), elevated valuations and currency headwinds will temper the performance of others (healthcare, offshore industrials/fintech).

We discuss key strategic questions:

  1. Can cyclicals deliver expected EPS upside surprise?
  2. Where’s the best source of secure yield?
  3. Will currency moves complicate the FY21 earnings picture?
  4. Do recovery expectations match reality?
  5. Does the resources rally have further to run?

Commodities/resources upside

An overweight exposure to resources shapes as one of the strongest sector allocation ideas for 2021.

Commodities tailwinds include improving post-COVID GDP growth, ongoing central bank stimulus, tight supply, and the weaker US dollar.

The best opportunities in the sector are in lagging energy and gold sectors.

Best tactical calls heading into results

In our Reporting Season Playbook, our research team previews expectations for 184 stocks reporting in February, including 52 where we expect positive price reactions, and 11 where we expect negative reactions.

We also profile the best looking tactical buys and notable stocks to avoid/trim. In this list we prefer larger stocks and those that overlap with the Morgans Best Ideas and the Morgans Equity Model Portfolios.

Morgans clients receive access to detailed market analysis and insights, provided by our award-winning research team. Begin your journey with Morgans today to view the exclusive coverage.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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Heading into February results, we examine key strategic themes across earnings trends, the cyclicals rotation, yield security, rising AUD impacts and resources.
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