This reporting season is making me feel more bullish about equities than what the upgrade-to-downgrade ratio would suggest.
The number of companies that delivered pleasing earnings upgrades compared to the number moving in the opposite direction is generally inline with what we've seen in the past, but there's a clear turnaround in sentiment towards a number of beaten down sectors that is most encouraging.
Before this month's reporting season kicked off, experts were really only bullish towards the mining and oil and gas sectors, while anything connected to consumer spending was shunned.
I think positive sentiment towards these out of favour sectors is returning. A number of retailers like Super Retail Group Ltd (ASX: SUL) and Myer Holdings Ltd (ASX: MYR) certainly have got issues, but it's not industry wide as the consumer spending recession is over.
A strong set of results from Flight Centre Travel Group Ltd (ASX: FLT), Webjet Limited (ASX: WEB) and Corporate Travel Management Ltd (ASX: CTD) is also bound to inject a fresh air of optimism towards travel stocks.
Thursday's bullish profit announcement by Nine Entertainment Co Holdings Ltd (ASX: NEC) will also likely prompt bargain hunters to return to the media sector.
Two underperforming media stocks that could start attracting attention from value buyers are Fairfax Media Limited (ASX: FXJ) and APN Outdoor Group Ltd (ASX: APO) after the stocks got upgraded by two different brokers.
UBS believes Fairfax has turned the corner after the company posted its second consecutive half of earnings before interest, tax and depreciation (EBITDA) growth with 1HFY18 earnings improving by 1% to $147 million – 6% ahead of what the broker was expecting.
The broker upgraded Fairfax to "buy" from "neutral" with a price target of 75 cents a share as it thinks the stock is cheap considering earnings momentum is improving with its cost cutting measures and revenue partnerships contributing to a stable EBITDA in FY18 an FY19.
This means earnings per share is set to rise thanks to its operating leverage and the company is in a strong position to participate in any merger and acquisition (M&A) opportunities.
Meanwhile, Credit Suisse upgraded APN Outdoor to "outperform" from "neutral" with a price target of $5.05 but the broker admits it's a gutsy call as its results were poorly received by the market.
But Credit Suisse thinks the worst is over as the risks around its leases and sales strategy have been addressed or are abating, and market expectations towards the outdoor advertising company have been rebased.
Trying to pick a turning point in an underperforming stock is always a risky endeavour but considering that the stock has slumped close to 30% over the past 12 months when the All Ordinaries (Index:^AORD) (ASX:XAO) is up 3.6% should provide some valuation support.
On the other hand, there is a sector that the experts at the Motley Fool are feeling very bullish on as they believe it is primed to ride a big investment wave in 2018 and beyond.
Click on the link below to get your free report on this sector and to find out what stocks to put on your radar this year.
