The impending profit reporting season promises to be like no other as disruption from the COVID-19 attack will impact on almost every S&P/ASX 200 Index (Index:^AXJO) stock.
I am bracing for a higher than normal number of surprises next month when ASX companies hand in their report cards.
It might surprise some of know that it won't all be negative surprises even as a second wave of coronavirus infections forced another shutdown in large parts of Victoria.
More negative than positive surprises
The reality is that most businesses won't have a much clearer understanding of what lies ahead now than in the early stages of the outbreak.
But what the August reporting season will allow management teams to do is to rebase expectations when it comes to earnings growth and dividends.
This is why I think we will get more negative surprises than positives this time, compared to past seasons when the ratio or "misses" and "beats" are roughly equal.
ASX stocks that can beat the street
But being a glass-half-full kind of guy, I rather talk about the unexpected positives than negatives. On this happy note, the analysts at Macquarie Group Ltd (ASX: MQG) have picked their "counter consensus calls".
These are stocks where the broker's FY20 earnings per share estimates are above what most other brokers are forecasting.
If Macquarie is proven right, these stocks could outperform next month as other brokers rush to lift their earnings forecasts for FY21, if not beyond.
Mechanics behind profit upgrades
What does underestimating FY20 earnings have to do with future profits you ask? Profit projections are usually based on a percentage increase (or decrease) over the previous year.
If earnings in the latest past year is higher than expected, then the following year's earnings number will be higher even if the percentage rate is unchanged.
So, even if an analyst isn't more bullish on the outlook of a company, he/she will still be compelled to lift the valuation of a stock.
Resource stocks well placed to be profit heroes
Resources stocks dominate Macquarie's list of potential reporting season heroes. Iron ore miners Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO) are included in this group.
Copper miner OZ Minerals Limited (ASX: OZL) and energy heavyweights Santos Ltd (ASX: STO), Woodside Petroleum Limited (ASX: WPL) and Oil Search Limited (ASX: OSH) also make the cut.
Other ASX stocks that can outperform
Just be aware that resource companies issue quarterly production updates, and the June updates are due this month. This means if you waited till August to act, the "surprise" may not be so surprising by then.
Outside of resources, ASX stocks that Macquarie believes could beat expectations include Aristocrat Leisure Limited (ASX: ALL), Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) and SEEK Limited (ASX: SEK).
