How the top stocks of the brokerage reporting season stacked up – Hans Lee

In June, I wrote an article about stocks that Macquarie analysts declared “recession-proof.” That article was read by more than 30,000 of you. But it also drew serious debate in the comments. Of all the things readers submitted (and thanks for doing so), this one stood out the most:

Thank you Jack!

This comment, and others like it, gave us an idea in the newsroom. What if we could track the top broker conviction picks this reporting season and see if they really can outperform the market?

This cable is the culmination of five weeks of planning, research, number crunching, and analysis. In fact, this piece is so big that we are going to divide it into two parts.

The first part, written by you, will focus on the haves (ie what the brokers actually picked). The second part, written by my colleague Chris Conway, will focus on the have-nots (ie, the companies that performed extremely well but didn’t endear themselves to the brokers in our data set). No problem.

Before the good oil, the discharges

First, this is an experiment for us here at Livewire. I haven’t been in these traps that long but to my knowledge this has never been done this way. Naturally, this will mean that we can make improvements to this idea.

Second, we were only able to reach pre-earnings season calls from four brokers. We’re sure all the major research houses reveal their highest conviction picks before August, with some even narrowing them down to the sector-specific level. One of the reports that we will present only deals with small caps. All this is to say that we were not able to reach everyone, so this list is not exhaustive.

Third, not all companies that were a top pick of the reporting season report in August. Is it so No covered with this wire.

A quick word on metrics

Our system is based on the binary number system. One (1) point is scored for a hit or line result. Zero (0) is assigned to any company that fails.

Metrics 1 and 0 will work for five of the six criteria:

  • Stock price reaction (day of)
  • EPS pass/fail
  • Revenue pass/fail
  • Benefit passed/failed
  • Dividend hike/cut

While we’re at it, we’ve only opted to measure same-day stock price reaction for ease of compilation and analysis.

The last metric is the most nuanced of all: perspective statements. We discussed whether any perspective statements deserved a point, or whether the perspective statements needed concrete, numerical guidance to win the point. In the end, we decided on the former. Mainly because we’re optimistic, and frankly, any perspective in the age of the pandemic deserves some credit.

And now, the results.

The actions that happened!
Actions that failed...
Actions that failed…

The 100 Club: Two Actions Achieved a Perfect Score

If we learned anything in this process, it was that the crush of runners doesn’t always bode well for reporting season. 28 stocks made our original list, and the average among those in our system was 64%. This implies that 64% of companies, indicated by brokers as a top conviction pick, actually improved their efforts across the board.

Of more interest, only two achieved a perfect score. And both were nominated as top conviction picks by different racers.

ridley corporation


woodside energy


Morgan Stanley

0 for 0: corporate resilience in sight

Economists often point to leading and lagging data indicators as reasons why they think a slowdown is coming. Some have gone further in suggesting that a recession is on the way, and others have even been willing to lay out a timetable for when that recession will materialize.

But if a recession is the buzzword in economists’ minds, it certainly hasn’t hit businesses to the same extent. Not a single company scored zero on our metrics. While no report was perfect, it does show that each company was able to demonstrate some level of resilience or improvement even in these challenging times.

As an example of that, 79% of companies in our dashboard provided outlook statements. 79% of the same list (although not necessarily the same names) increased or matched their previous dividend payout in FY21. While there are plenty of reasons to be skeptical that the increase in payouts might have something to do with the declines in share prices we’ve seen this year, it also shows that corporate boards are holding their ground or trying to find new ones. ways to reward shareholders even in this harsh environment.

Tough Crowd: Investors react poorly to results that don’t raise the bar

One of the things that stood out immediately when we finally completed the last of the results was the poor reactions to the reports on the day of its release. In fact, only 25% of the companies reporting on their respective days posted a positive end-of-day performance in share price following their earnings release.

For companies that saw a noticeable rise in share price after their reports, there was a consistent theme that those same companies outperformed last year’s effort across the board. Put another way, companies that scored a “1” in this column also scored high on all other metrics. If you will, perfectionism was well rewarded and any hint of disappointment was seen as a reason to sell.



2/6 morgans
Goodman Group


6/6 Morgan Stanley, Macquarie
Education for internally displaced persons


5/6 UBS


6/6 UBS
Newcrest Mining


5/6 Macquarie


4/6 Morgan Stanley*
QBE insurance


5/6 Morgan Stanley
ridley corporation ASX: RIC 6/6 UBS
woodside energy ASX: WDS 6/6 Morgan Stanley

*Interestingly, UBS actually marked Qantas as caveat shares as one of a number of companies that could be hit in the long run by rising costs.

But if you thought the crowd was tough…

One thing, our new managing editor Chris Conway he immediately pointed out to me once reporting season was in full swing, how many markdowns were flooding our inbox. Why weren’t they done before the reports came in?

This question gave us a new insight: how much of a downgrade will we see in this post-report seasonal cycle? And, in turn, are those sales perhaps too late?

take as an example Shared Computer (ASX: CPU). Computershare stood out as one of the top companies to avoid rising interest rates. It has a steady stream of revenue from regular customers, or so we thought. While global revenue looked good, this part of the outlook spooked the market:

Revenues based on transactions in corporate shares and trading in employee stock plans were affected by market volatility in the second half, and the expected recoveries in bankruptcy and class actions have yet to materialize.

Following the disappointing share price performance, brokers cooled their enthusiasm for the company and CLSA downgraded the stock twice.

Our quick math revealed that there were 184 markdowns during the month of August across the entire range of brokers (including those not on our list). Among the highlights:

  • ResMed ASX: RMD was demoted for five brokers after earnings, including a slew of neutral ratings at JPMorgan and Citi
  • Bendigo and Adelaide Bank ASX: BEN faced five downgrades after earnings, and all but one (to our knowledge) were downgrades to one sale rating.
  • ASX Application: APX got two more downgrades after earnings, bringing his score to 0 purchases and 5 sales (including data from FNArena). Oh.

What happens now?

If our data has shown anything, it’s that companies look good on the top line when it comes to issuing concrete outlook statements and increasing dividend payouts. But look below the surface and you’ll see that those top headlines easily show more than a few cracks. For example, while nearly 80% of companies increased revenue year over year, only slightly more than 50% increased profits. Costs are rising, rates are rising, and earning higher profits in a tougher market environment is fast becoming the defining challenge of our time.

Stay tuned for part two of this collection as Chris walks you through a series of results that runners missed. These are the companies that the experts overlooked and will make for eye-opening reading.

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I’ll be in charge of asking questions of Australia’s best fixed income strategists, economists and fund managers. If you have your own questions, email us: [email protected]

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