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Why Morgans thinks the Afterpay share price could be a reporting season hero

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The true believers in the Afterpay Ltd (ASX: APT) share price rejoice! A top broker believes that the tech superstar is a possible reporting season winner.

This piece of good news comes as the Afterpay share price shoots past current fundamentals. The BNPL stock surged 7.9% to a record fresh high of $74.90 ahead of the market close.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) jumped 2.3% at the time of writing as the extension of JobKeeper and JobSeeker payments were extended by the federal government.

What to expect from the ASX reporting season

Morgans is contemplating how next month’s reporting season will play out when it made the bullish assessment on Afterpay.

While current market valuations are hard to justify as the top 200 index jumped 45% from its COVID-19 low point in March, this doesn’t necessarily mean a sharp correction is on the cards.

“Reporting season will be nasty, with EPS [earnings per share] expected to drop ~15% vs FY19, but represent a turning point in the cycle,” said the broker.

“Opportunities to beat forecasts may exist for domestic cyclicals, where expectations are the lowest.”

“It also provides an opening for companies that address uncertainty by speaking to the longer term. We think guidance will be rewarded.”

Should you buy ASX stocks now?

But I think guidance will be hard to find when ASX stocks unveil their profit results in August. Those buying stocks now are doing so for the expected earnings recovery in two years.

That’s all well and good as long as you are willing to stomach the nearer-term uncertainty from the coronavirus economic meltdown.

Here’s the fun part. Morgans believes this reporting season presents some “tactical opportunities”. These are short-term profit making opportunities that nimble investors may be able to leverage.

ASX stocks that can deliver positive surprises

Stocks that the broker believes will deliver a stronger outlook or positive trading update not only includes gravity-defying Afterpay, but also the AMCOR PLC/IDR UNRESTR (ASX: AMC) share price and Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price.

Further, Morgans identified ASX shares with earnings upside risks. These are the A2 Milk Company Ltd (ASX: A2M) share price, AP Eagers Ltd (ASX: APE) share price, AGL Energy Limited (ASX: AGL) share price and Superloop Ltd (ASX: SLC) share price.

The Telstra Corporation Ltd (ASX: TLS) share price could also outperform during the profit season, which kicks off in two-weeks.

Morgans believes our largest telco could deliver a capital management surprise, even in the face of a possible mobile war with its rivals.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Brendon Lau owns shares of Telstra Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of SUPERLOOP FPO. The Motley Fool Australia owns shares of and has recommended Amcor Limited and Telstra Limited. The Motley Fool Australia owns shares of A2 Milk and AFTERPAY T FPO. The Motley Fool Australia has recommended Domino's Pizza Enterprises 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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