Broker picks the ASX stocks in the reporting season hot-seat

The string of profit downgrades shows how high the stakes are for the upcoming profit reporting season.

The string of profit downgrades shows how high the stakes are for the upcoming profit reporting season.

Next month could prove to be a particularly volatile period for S&P/ASX 200 (Index:^AXJO) (ASX:XJO) stocks as companies prepare to hand in their earnings report card.

The recent dismal trading updates from the likes of Downer EDI Limited (ASX: DOW), Super Retail Group Ltd (ASX: SUL) and Flight Centre Travel Group Ltd (ASX: FLT) will put investors on edge for the February profit season.

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The good, the bad and the ugly

Morgan Stanley highlights a handful of stocks that are likely to make significant moves over the next 45 days.

The broker issued technical recommendations predicting the short-term price movements of certain stocks. The drivers for these share price movements stems from the reporting season.

School's out

One ASX stock that's tipped to fall over the coming weeks is 3P Learning Ltd (ASX: 3PL). Morgan Stanley believes there is a more than 80% chance that the 3PL share price will fall over the next month and a half.

This is because of the limited upside from the educational resources company's first half result to be released in February.

3PL's earnings are heavily skewed to the second half of the financial year.

The stock fell 1.8% to $0.81 during lunch time trade. Morgan Stanley rates the stock "equal-weight" (equivalent to a "hold") with a price target of $1 a share.

Going in reverse

Another that's expected to struggle next month is the SG Fleet Group Ltd (ASX: SGF) share price. Morgan Stanley estimates there is more than 80% chance that shares in the fleet management and novated leasing group will fall in absolute terms over the next 45 days.

"This is because of an earnings release," said the broker. "We see softness at peers, softness in auto sales and deferral of revenue as headwinds."

The SG Fleet share price lost 0.4% to $2.30 at the time of writing. Morgan Stanley's recommending the stock as "equal-weight" with a price target of $2.60 a share.

Big smile

On the other hand, one stock that could put a smile on shareholders' faces is the Pacific Smiles Group Ltd (ASX: PSQ) share price.

Morgan Stanley believes there is a more than 80% chance that the stock will rise before the end of February.

The dental group is expected to post strong first half results next month, which Morgan Stanley thinks will send the share price jumping higher.

The broker is recommending Pacific Smiles as "overweight" (equivalent to a "buy") with a price target of $1.90.

The stock is trading 1.1% higher at $1.78 at the time of writing.

Motley Fool contributor Brendon Lau owns shares of Downer EDI Limited. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. The Motley Fool Australia owns shares of Super Retail Group Limited. 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.

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