Overall, the February reporting season was pretty good. The press has largely categorised it as ‘good but not great’, with double-digit earnings growth common among the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) companies, compared with low-single digits in previous years. But what are the big conclusions to draw for our investing in 2014?
- Big mining companies are back! It’s important to highlight big here, because some of the smaller names, especially in the gold space, struggled; but better than expected earnings results from the likes of BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO), Fortescue Metals Limited (ASX: FMG) and Newcrest Mining Limited (ASX: NCM) helped to lift the mood of investors.
- But mining services companies continue to struggle. The big mining companies now hold the balance of power and are using it to lower tender prices and thus the profit margins of mining services companies. Those exposed to iron ore are hurting the most, while those exposed to gas, or addressing more niche markets are faring much better. Check out Tox Free Solutions Limited (ASX: TOX) for a niche player.
- The big four banks are still raking in the cash. Earnings growth of between 5% and 7% year-on-year has convinced a number of bearish investors that the banks will continue to boost profitability and dividends in the medium term at least. Australia and New Zealand Banking Group (ASX: ANZ) remains my favourite due to its Asian exposure.
- Consistent performers remain the best buys. Long-term Foolish favourites SEEK Limited (ASX: SEK), Domino’s Pizza Enterprises Ltd (ASX: DMP) and Flight Centre Travel Group Ltd (ASX: FLT) led the way by delivering above-expectations earnings and revenue. This has become a trend and all three have strong growth profiles.
- Finally, the oil and gas sector is turning into a yield play. While a divisive force among investors, recent attention to cashflow has turned or will turn big players Woodside Petroleum Limited (ASX: WPL), Oil Search Limited (ASX: OSH) and Santos Limited (ASX: STO) into high-yielding stocks. Time will tell whether the market will reward or punish these companies for neglecting previous high-growth strategies.
As always, owning the best companies will reward investors over the long term. More than anything, this earnings season has reinforced this, with companies able to consistently grow earnings and revenue rewarding shareholders. These companies have also been able to grow dividends, further rewarding long-term shareholders.