Hoping for calm after the storm
Published in the Herald Sun, July 2011 by Karina Barrymore
Never before has our sharemarket had to endure such a plethora of adverse events; from floods, earthquakes and cyclones, to nuclear meltdown, international debt crises, a record high dollar and the unknown impact of a carbon tax.
The fortunes of almost every mum-and-dad investor, superannuation fund member, trader and self-funded household hinge on the profits and outlook of our listed companies.
But as the profits and dividend announcements are reeled off in the next two months, it's not just what the companies did last year that is important but what they are forecasting.
Overall, analysts are not expecting too many shocks. And falls in share prices may offer a discounted entry for new investors. But they warn big dividend income should not be the main target.
According to the experts some companies may have to sacrifice payouts to shareholders to keep their earnings and share prices going up.
"The surprises are expected to be better than expected earnings, albeit with a few exceptions," CMC Markets chief executive Michael McCarthy said.
"For investors, it is important to be on the alert for companies and industries displaying earnings growth, as this will be a major factor in share price growth."
Fund management group Lincoln Indicators said people would need to pick their companies carefully, as the year ahead would not be rosy for all major sectors.
"They say every rose has its thorns and if the resources and mining sector of the Australian economy are flowering, the retail and manufacturing sectors are the thorns in our side," Lincoln chief executive Elio D'Amato said.
While most retailers have already forecast tough trading conditions, there could still be more disappointing news.
The building and materials sector, too, might take a knock, the fund manager said.
"Despite compensation and deals for a high number of carbon emitters, depressed construction numbers and a strong currency are likely to ensure that building product companies and domestic manufacturers continue to underperform," he said.
Airlines could also suffer a double whammy as the long-term implications of the carbon tax become clear, coupled with shorter-term reduced consumer spending, Mr D'Amato said.
On a positive front, UBS strategist David Cassidy expects good outcomes from Resmed, Amcor, JB Hi-Fi, Billabong International and Sims Metal.
Companies servicing the resources sector should be "rare sources of strong results", while the resources firms themselves will have to juggle rising production costs with the need to return cash to shareholders.
Wealth Within fund manager Dale Gillham says there will continue to be a trade-off between share-price growth and dividends.
Investors would be wise to hold a parcel of mining stocks from within the ASX 100 including BHP Billiton and Rio, despite their dividends being below average.
"Income is not the only consideration in these times, it's also about preserving capital and buying into stocks that are likely to be supported over the next six months," Mr Gillham said.
PROFIT SEASON FORM GUIDE
Predicted ups and downs
Potential good news
- Resmed - sales volume recovers
- Boart Longyear
- solid result and lift in share price
- Amcor - positive surprise at the profit margin
- Billabong International - better than expected results
- Sims Metal - strong sales growth
Potential bad news
- Sonic Healthcare - risk of cost increases
- exchange rate risk, manufacturing increases
- potential guidance downgrade
- Bluescope Steel/Onesteel
- intense exchange rate pressures
- Toll Holdings
- graduated guidance downgrade
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