We’re now in the thick of it. Earnings season is here, with investors reassessing their investments.
It’s an important time to check on your investments. But you may not want to place too much importance on year-to-year changes.
If you think a business is a good long-term investment, how much does a 1–5% change in profitability really change the company’s long-term outlook?
Anyway…since 31 July, the All Ordinaries has traded in a 1.2% range.
Companies early to report earnings included iron ore miner Rio Tinto Ltd [ASX:RIO] and insurer Genworth Mortgage Insurance Australia Ltd [ASX:GMA].
Iron Ore Miner falls on lower than expect profits
Rio generated US$19.3 billion in revenues, of which 17% trickled down into net profits. Rio’s profit of US$3.3 billion was 94.1% above FY16 figures. The miner also improved cash flow and dividends, while expanding on their $628 million share buyback scheme by $1.25 billion.
But it wasn’t enough to keep investors from selling the stock. Lower-than-expected profits caused the miner to fall 2.6% on Thursday.
Insurance provider Genworth rises on positive earnings
The situation for Genworth was slightly different. In their first half 2017 earnings, sales, profitability and dividends all slid. CEO Georgette Nicholas said:
‘Despite some challenging market dynamics, including elevated mortgage delinquencies in resource-exposed regional economies and a smaller higher loan-to-value ratio (LVR) market, our profitability remains strong. At this time, our full year 2017 guidance is unchanged from that provided to the market in February.’
Genworth improved their cash flow position and announced a $100 million buyback starting on 21 August. There were enough positives for investors to bid the stock up 5.3%, to $3.2 per share last Wednesday.
I wouldn’t expect too much from this year’s earning season, up or down. Unlike US investors, we’re not looking at a drastically overvalued market ready to correct.
The All Ordinaries trades on a price-to-earnings ratio of around 20-times earnings. It’s far below its high in 2016 of more than 28-times earnings.
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Junior Analyst, Markets & Money