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UBS picks the best and worst ASX stocks from the reporting season

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Last month’s reporting season produced more winners than losers despite the COVID-19 market meltdown. UBS picks the best and the worst of the S&P/ASX 200 Index (Index:^AXJO) bunch.

The broker noted that the profit season was better than expected with several stocks showing surprising resilience to the economic fallout from COVID-19.

One sector that stood out for all the right reasons was consumer discretionary. Many listed players in this space have a decent web presence that appealed to stuck-at-home consumers.

Other sectors that performed well include consumer staples, building materials, gaming, general industrials and insurance, added UBS.

Biggest earnings cuts

Consensus estimates for FY21 earnings per share (EPS) were cut by 1.8% over reporting season. The biggest culprit was the industrials (excluding financials) stocks as the group suffered an 8.2% downgrade.

Financials also got a 2.6% haircut to the current financial year’s EPS forecast, although most of the cuts were already made before reporting season.

On the other hand, resource stocks enjoyed a 6.3% uplift to FY21 EPS due largely to good commodity prices and outlook.

Profits to rebound in FY21

But the worst of the earnings hit could be behind us even though tomorrow’s GDP reading will almost certainly confirm that we are in a deep recession.

“The market now expects 8.3% EPS growth in FY21, led by the Financials (+13.3%) and the Resources (+8.3%),” said UBS.

“The Industrials ex-Financials are now only seen delivering 2.3% EPS growth, down from 8.3% before reporting season.”

Cash surprise

But one of the biggest surprises from the reporting season isn’t earnings but cash flow. The broker noted that 20% of stocks under its coverage delivered stronger than expected cash flows.

This may be due to management teams running down inventories and hoarding cash due to the uncertain operating environment.

Biggest ASX winners from reporting season

ASX 200 stocks that are regarded as being the champs of the reporting season in UBS’ eyes include the Cleanaway Waste Management Ltd (ASX: CWY) share price, and the JB Hi-Fi Limited (ASX: JBH) share price.

Others in the winners’ circle are the Reliance Worldwide Corporation Ltd (ASX: RWC) share price, Suncorp Group Ltd (ASX: SUN) share price and Treasury Wine Estates Ltd (ASX: TWE) share price, although the latter was subsequently hit by the China-Australia trade spat.

On the flipside, the biggest sinners include the Bendigo and Adelaide Bank Ltd (ASX: BEN) share price, Origin Energy Ltd (ASX: ORG) share price, Telstra Corporation Ltd (ASX: TLS) share price, RESMED/IDR UNRESTR (ASX: RMD) share price and Vicinity Centres (ASX: VCX) share price.

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Brendon Lau owns shares of Telstra Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Reliance Worldwide Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited and Treasury Wine Estates Limited. The Motley Fool Australia has recommended Reliance Worldwide Limited 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.

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