The August profit reporting season is described by some as the worst ever for the ASX, but this may not be true for at least one sector.
This sector is the only one that UBS is predicting can deliver earnings per share (EPS) growth for FY20.
If you guess mining, you’d be wrong. While Rio Tinto Limited (ASX: RIO) posted a decent result last week, its interim EPS fell 3%!
The only ASX sector growing profits
The mining-beating sector is discretionary retail even though this sounds counter intuitive. Retailers tend to be among the hardest hit in recessionary environments, just like during the GFC.
But this downturn that’s triggered by COVID-19 is different from any other we’ve encountered in living memory.
The pandemic brought about a change in consumer behaviour, while government stimulus provided an extra tailwind. UBS is tipping the sector will post a 5.9% increase in EPS for the year.
Recent guidance shines light
However, this doesn’t mean the best opportunities are in the consumer discretionary sector. If anything, the fiscal cliff (when government support is tapered or withdrawn in October) poses a risk to the sector.
While many retailers will post decent FY20 profit results, their outlook for the next 12 months may not support their stellar share price run, in my view.
ASX stocks that can beat expectations
If you are looking for upside surprises during the reporting season, you probably will need to look elsewhere, and UBS highlighted a few to watch.
Among the S&P/ASX 200 Index (Index:^AXJO) miners, the BHP Group Ltd (ASX:BHP) share price, Alumina Limited (ASX: AWC) and South32 Ltd (ASX: S32) share price could jump as UBS thinks they could deliver better than expected results.
Better than expected outlook
At the smaller end of the market, UBS is optimistic about the Breville Group Ltd (ASX: BRG) share price and Nextdc Ltd (ASX: NXT) share price. The broker believes both will please on their results and outlook statements.
These 3 stocks could be the next big movers in 2020
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.*
In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.
*Returns as of 6/8/2020
Brendon Lau owns shares of BHP Billiton Limited, Breville Group Ltd, Rio Tinto Ltd., and South32 Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia owns shares of and has recommended Amcor Limited. The Motley Fool Australia has recommended Kogan.com ltd and ResMed Inc. 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.
- The next ASX stock to be rocked by board shakeup after Rio Tinto (ASX:RIO) – September 22, 2020 6:58pm
- Telstra (ASX:TLS) share price is one of the latest ASX buy ideas from brokers – September 22, 2020 4:46pm
- Why the Regional Express (ASX:REX) share price is taking off today – September 22, 2020 4:01pm