Genworth Up, Rio Down, Earnings Season Is in Full Swing

Bull Market Risk

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.

But that doesn’t mean the ASX is littered with undervalued stocks. Vern Gowdie, our award-winning financial adviser, believes there are five stocks you need to avoid.

In his report, ‘Sell These Five ‘Fatal’ Stocks Now’, Vern will show you the five biggest threats to your wealth, and how you can avoid them.

To get your free copy of Vern’s report, click here.

Regards,

Härje Ronngard,

Junior Analyst, Markets & Money

Härje Ronngard

Härje Ronngard

Harje Ronngard is a Junior Analyst at Markets and Money.

With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation.  

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