Those keen on capitalising on the upcoming reporting season might want to watch outperforming and underperforming stocks as prior share price movement can be a pretty good predictor of a company’s profit result.
Supporters of efficient market theory, or the belief that a company’s share price reflects all the available information, would be delighted to hear Macquarie’s quantitative analysts use “momentum” (the technical name for the share price trend) as a key driver for their prediction model.
The prediction model has so far yielded impressive results. In the last reporting season back in August 2014, the model generated an absolute return of 4.6%. This is calculated by the differences in performance of stocks that were tipped to beat market expectations and those that would post numbers under market consensus.
Based on Macquarie’s model, fund manager Platinum Asset Management Limited (ASX: PTM) has the highest chance of delivering a positive earnings surprise with a 26% probability.
This is followed by telco giant Telstra Corporation Ltd (ASX: TLS), property company Charter Hall Group (ASX: CHC) and another fund manager Magellan Financial Group Ltd (ASX: MFG). These companies have a 25% chance of beating expectations.
On the flipside, iron ore miners feature prominently on the “at risk” list with Macquarie outing miner BC Iron Limited (ASX: BCI) as the most likely to disappoint the market with a 36% chance of posting numbers under consensus following its 91% share price plunge over the past 12 months.
Others that are tipped to be whacked on the head by the wooden spoon include engineering contractor Cardno Limited (ASX: CDD) with a 30% probability, and iron ore producers Atlas Iron Limited (ASX: AGO) and Mount Gibson Iron (ASX: MGX) – each with a 29% probability.
Outside resources, advertising and marketing group STW Communications Group Ltd. (ASX: SGN), payment and transport company Cabcharge Australian Limited (ASX: CAB) and Japara Healthcare Ltd (ASX: JHC) are also at risk of reporting numbers under market expectations next month.