The August reporting season is probably one of the worst in terms of consensus profit revisions for FY20 as brokers noted that there were more earnings misses than beats.
The negative sentiment is on full display today as global economic developments on Brexit turmoil and Trump's trade war with China forcing down the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index by 0.8% during lunch time trade.
Unless it's a gold miner, whatever stock you pick is likely to be wallowing in the red.
Priced for perfection
But amid the broad-based sell-off and the disappointing reporting season, Morgans sees pockets of value emerge even as it picked up on some disturbing trends.
"We'd flagged that expectations for FY20 looked far too heroic heading into August, so it wasn't surprising that forecast FY20 EPS growth (again ex-Resources) has eroded from 8.3% prior, to 6.2% currently," said the broker.
"We're cautious about ongoing erosion in the context of dividend sustainability (supporting the 'equity yield arbitrage' trade) and upward pressure on stretched valuations which leave little room for error."
Tables turned on offshore earners
What is more concerning in my view is how the tide is turning for ASX stocks with material offshore exposure. These were among my favourite picks earlier in the year but no thanks to the US-China trade war, the unstable political environment in the UK and violent riots in Hong Kong, these stocks don't look as attractive as they use to.
The downgrade in FY20 forecasts for some key names, such as Brambles Limited (ASX: BXB) and Orora Ltd (ASX: ORA), underscores the challenge, according to Morgans.
In the meantime, the domestic economy doesn't seem that threatening with some of our retailers posting good results and outlooks while lower interest rates and tax cuts are tipped to inject some life back into local operators.
For these reasons, Morgans sees better value among ASX stocks with greater domestic exposure than international leverage.
The list of outstanding value stocks
The broker also believes that the appeal of capital returns from share buybacks and special dividends is waning. Investors prefer stocks that invest in growth rather than return cash to shareholders. The news should put a smile on the face of Federal Treasurer Josh Frydenberg and the Reserve Bank of Australia (RBA) board!
Some of the stocks that Morgans calls "standout opportunities" include the Cleanaway Waste Management Ltd (ASX: CWY) share price, the Sonic Healthcare Limited (ASX: SHL) share price, Treasury Wine Estates Ltd (ASX: TWE) share price and Woodside Petroleum Limited (ASX: WPL) share price.
The experts at the Motley Fool have also identified a handful of well-priced ASX stocks to add to your watchlist.
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