The Wilsons Australian Equity Focus List has been updated following a number of earnings announcements and company updates in the past month. A rollover in earnings momentum we flagged in September has continued for the S&P/ASX 200.
Some of this is a function of falling iron ore prices and domestic lockdowns, but several stock-specific situations have seen earnings slip from FY22E and into FY23E. We see the key implication for investors being the need to be more selective around portfolio positioning.
The focus on earnings momentum could well become even more important over FY22E as the impact of low COVID-19 base effect fades and the recovery becomes more nuanced – the prospects of an uneven recovery between companies will likely intensify.
Our changes to the Focus List are significantly influenced by where we see earnings momentum heading into FY22E. We moved banks to an underweight position, as cost pressures are likely to crimp earnings growth across the sector.
ResMed (RMD) has been removed following a disproportionate increase in the share price vs the potential sales improvement from a competitor product recall.
We have added banking disruptor Judo Capital (JDO) following the recent IPO. Weightings have been increased in Aristocrat Leisure (ALL), Goodman Group (GMG) and Macquarie Group (MQG), where we see the prospects of positive earnings momentum remaining in place through 2022.
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John is a leading investment strategist with 20 years experience.