The Fog of War is about to be lifted a little when ASX-listed companies pull back the earnings curtains next month.
There's a lot riding on the results and outlook statements given that the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is trading near a 10-year high as investors look for new reasons to buy the market despite stretched valuations and rising global risks.
But there's three large cap stocks that investors should pay closer attention to as I think they have the most to prove in the August reporting season.
The first is QBE Insurance Group Ltd (ASX: QBE) as the underachiever will need stand up and deliver if it doesn't want to test the patience of its supporters.
The stock has slumped 15% into the red over a past year that was triggered by its disappointing half year results a year ago.
But the tide should be turning. While the global economic environment may have turned hostile for most companies, it has gotten more favourable for QBE.
This is because the insurer should benefit from rising US bond yields, which makes QBE a bit of an anomaly in the financial sector given that earnings from banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) are being pressured by the higher yields.
The uptrend in the US dollar will also benefit QBE when it converts its US dollar earnings into Aussie, while the benign claims environment and industry premium increases will pad its profit margin.
Investors can only hope that management will have more positive news to share this time round.
Another stock that needs to stand up and deliver is global logistics group Brambles Limited (ASX: BXB). The stock has also underperformed the broader market with its 6% gain over the past year as investors felt let down at its last profit results when the pick-up in economic activity had failed to translate into any meaningful profit gains for the group.
Rising costs of timber (used in its pallets) had also pressured the bottom line, although conditions for its pallet business seems to have improved in recent months.
Further, global economic activity continues to accelerate despite geo-political and trade tensions with US GDP growth jumping 4.1% to its highest since 2014.
Brambles also benefits from the rising greenback given its large exposure to the US market and investors will be watching closely to see if the group is deserving of a re-rating in August.
Finally, I think all eyes will also be on REA Group Limited (ASX: REA). Unlike the other two stocks, the online property classifieds business is a star performer with gains of 29% over the past year.
This puts REA on a FY19 consensus price-earnings multiple of 34 times – which is more than double the P/E of the ASX 200.
This in itself isn't an issue if the stock can deliver strong double-digit earnings growth, but the falling property market could put this goal out of reach for the high achiever.
It isn't falling property prices that REA needs to worry about but advertising volume. There are signs that vendors are withdrawing from the market to wait for a rebound in prices and that could crimp the company's growth in FY19.
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