Our market is off to a promising start this month and there are no signs of the bears who typically maul share investors in May, which has historically been a dismal period for the S&P/ASX 200 (Index:^AXJO) (ASX:XJO).
But don’t be lulled into a sense of complacency even as the top 200 stock index chalked up a robust 2% gain over the past week thanks to a relatively benign company confession season (so far) and promising profit results from Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ).
The market sell-off could come in the latter half of the month and investors are likely to be on tenterhooks over the next few weeks at least as there are a number of profit results, shareholder updates and company meetings to get through.
On that front, Morgans has highlighted a number of stocks with either upside or downside risks that investors should be watching closely and I’ve picked five of the more notable ones from the list.
The first is embattled consumer financing business Afterpay Touch Group Ltd (ASX: APT), which has been hammered on worries about the sustainability of its business model and worries that authorities will move to regulate this part of the industry.
The stock has recovered some of its lost ground but the real test will come later this month when management provides an update on its US expansion.
Morgans thinks Afterpay Touch could be more advanced in its entry into the world’s largest consumer market and that news is likely to send the stock bouncing higher.
Another stock with a positive catalyst this month is power utility Ausnet Services Ltd (ASX: AST), which is set to report its full year results on 18 May.
Morgans believes the company could pleasantly surprise investors with a faster than expected cost-cutting program to bolster its bottom line. The prospect of management providing guidance for the first time on dividends for the following financial year will also be warmly received by the market.
Keep an eye out too for Orora Ltd (ASX: ORA) as the packaging company is scheduled to hold its strategy meeting day this Friday.
“[This] should give the market greater comfort on the business’s future earnings trajectory. Given ORA’s strong balance sheet, an acquisition should also be viewed positively,” said the broker.
On the flipside, AMP Limited (ASX: AMP) is holding its Annual General Meeting (AGM) on Thursday and Morgans believes that the embattled wealth manager will provide a March quarter update the following week.
Two of AMP’s directors who were facing re-election during the AGM have resigned today as they were at risk of facing a protest vote in light of the damning revelations from the Banking Royal Commission.
Surely all the skeletons have fallen out of AMP’s closet, but I don’t think any investors will be willing to bet on this to step in and buy the stock.
Morgans also flags the risk of soft fund flows and news of class action lawsuits, which will undoubtedly put further strain on AMPs share price.
Investors should also keep their heads low for Graincorp Ltd (ASX: GNC) as it releases its results this Friday.
“Following well below average rainfall across most parts of Australia over February to April and the Bureau’s forecast for continued dry conditions, there is the potential for another below average 2018 winter crop,” said Morgans.
“Given the stock has rallied strongly on expectations of an improved 2018 winter crop and the potential to realise value from its infrastructure assets, shareholders may look to lock in profits.”
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Motley Fool contributor Brendon Lau owns shares of AFTERPAY T FPO, Australia & New Zealand Banking Group Limited, and Westpac Banking. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.