The ASX reporting season always throws up potential tactical buying opportunities for nimble investors, and this time is no different!
The fact that COVID-19 has triggered a string of unprecedented events may only add to the opportunity.
As it stands, the market is yet to fully appreciate the earnings and dividend upside from ASX stocks that are leveraged to the economic recovery, according to Morgans.
Another better than expected reporting season ahead?
"Domestic cyclicals outperforming overly fearful market expectations was a dominant theme in August," said Morgans.
"And analyst previews of the 184 stocks under Morgans coverage suggest this trend will continue in February.
"Our analysts expect that 28% of stocks covered have reason to respond positively to February results."
No easy pickings
But investors will need to be careful. They will have to jump through multiple hoops at the same time to find the best ASX stocks to buy.
This is due to the uncertainties created by the pandemic. Morgans is warning investors to thread carefully if they want to beat the S&P/ASX 200 Index (Index:^AXJO).
"While the recent good form in the economy will benefit segments of the market (retailers, banks, resources), elevated valuations and currency headwinds will temper the performance of others," added the broker.
ASX stocks to buy for the reporting season
Morgans best tactical calls for the February reporting season included 18 ASX stocks. Below are four that stood out, in my view.
The first is the BHP Group Ltd (ASX: BHP) share price. Iron ore miners have been on a tear due as the commodity defied gravity and sceptics to hit new multi-year highs.
But Morgans picked the BHP share price as one to watch as the miner is likely to unveil a pleasing dividend and possible share buyback.
Another to make the list is the Breville Group Ltd (ASX: BRG) share price. The broker is tipping a strong first half result, which could make FY21 guidance look increasingly conservative.
Other ASX stocks that can rally on their profit results
The Ramelius Resources Limited (ASX: RMS) is another to watch, especially after its recent underperformance.
Even though the gold price has pulled back, the miner is still expected to post a strong earnings before interest, tax, depreciation and amortisation (EBITDA). This will remind investors about its robust cash flows and attractive valuation, added Morgans.
Meanwhile, the Sonic Healthcare Limited (ASX: SHL) share price could also rally on its results. Morgans is predicting a better than expected result for the medical testing group due to the surge in COVID testing across all its key markets.
This is more than enough to offset weakness in its base business as demand for other medical tests fall to the wayside.
