The current United States reporting season could create
further volatility, providing some opportunities to increase
or establish positions in quality overseas companies, Craigs
Investment Partners broker Chris Timms said yesterday.
This week, the first of the major names in the US report
their quarterly earnings.
By the end of the week, about 15% of the Standard and Poor's
500 companies by market capitalisation would have reported.
''Over recent days we have seen some volatility in the
market, first on the back of negative sentiment regarding
further stimulus cuts by the United States Federal Reserve,
followed by some positive sentiment on the back of retail
Some of the recent volatility could also be attributed to
investor caution ahead of earnings announcements, especially
given the number of negative pre-announcements seen by
corporates, Mr Timms said.
During the reporting season, Craigs expected many companies
to continue to deliver a similar theme of solid earnings
growth despite modest revenue growth.
While the 2013 performance in the US had seen some multiple
earnings expansion, a discount to the long-run average still
Valuations overseas remained more attractive, on a relative
basis, than they did domestically.
''Coupled with our strong currency, which should ease over
the medium term despite short-term strength, increases to
global allocations should be considered,'' he said.
According to Reuters data, nearly 10 out of every 11 earnings
pre-announcements for the current earnings season from
S&P companies had had estimates revised lower.
However, macro data and earnings per share (EPS) trends
suggested earnings should be healthy and showed EPS growth
gaining further in 2014.
In the latest earnings season, expectations were for earnings
growth of 8.3% and sales to fall by 1.5%, Mr Timms said.
While there had been negative revisions, only about 20% of
the S&P 500 companies had come out with pre-announcements
and the past four quarters had had the index push higher
despite downward revisions to earnings forecasts in each
So far, 43 companies in the index had reported earnings.
Estimates show more than 60% of them had beaten expectations
at the sales level and a similar number had beaten them at
the earnings level, he said.
''Given the small sample size so far, it is difficult to get
a meaningful gauge of how remaining corporates will report.
"Strong revenue growth is likely to remain elusive for many
companies while earnings should continue to improve through
productivity gains, cost management and divestment of
Many corporates had also supported EPS growth through share
buy-backs which had been at the highest level since 2007, Mr
With the high likelihood there would be further tapering
throughout this year, there could be volatility and
opportunities to pick up quality stock.
However, it was important to note further tapering was
predicated on the continuation of improving economic data.
The caveat of solid underlying growth in the US economy in
order for further stimulus should translate into revenue
growth for corporates.
An improving economy would offset some of the potential
volatility from further tapering as it would result in
improving earnings for corporates.
Simply waiting for large swings as entry points in an
environment of improving, and sustainable, underlying growth
might prove difficult.
Any short-term dip should be seen as a buying opportunity, Mr
United Tech, Microsoft, Procter and Gamble, Apple,
Caterpillar, Plum Creek Timber, AT&T, Facebook, Roche
Holding, Google, 3M Co, Diageo, Exxon Mobile.
Toyota, BP, Syngenta, GlaxoSmithKline, Twitter, Vodafone,
Statoil, SSE, Coca-Cola, Reckitt Benckiser, Nestle.