Top broker picks 6 ASX 200 shares with earnings surprise potential

A leading broker picks its top half dozen this reporting season.

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  • How ASX 200 shares trade this month will likely depend on this reporting season
  • The biggest winners tend to be those that beat expectations as opposed to those with big earnings
  • Goldman has 6 ASX 200 shares on its buy list that it thinks will exceed market expectations

The reporting season is ramping up and will help set the tone for S&P/ASX 200 Index (ASX: XJO) shares for the month.

Your ability to pick the winners and avoid the losers will be key to outperforming. The biggest winners from any profit season tend to be those that deliver beyond expectations. This is more so than shares with the biggest earnings growth numbers.

From that perspective, Goldman Sachs has compiled a list of ASX 200 shares that it thinks can beat the street and are rated "buy" by its analysts.

ASX 200 shares with reporting season upside

Nine Entertainment Co Holdings Ltd (ASX: NEC) could be one such hero this month. This is in part thanks to its exposure to property listing website Domain Holdings Australia Ltd (ASX: DHG).

The broker believes that property listings have performed well ahead of market expectations in the December quarter.

Further, Nine Entertainment may undertake a capital return or make a strategic investment thanks to its strong balance sheet.

The second ASX share to watch during reporting season is the global metal and electronics recycling company Sims Ltd (ASX: SGM).

Strong results from its international peers and Chinese scrap import data is helping drive Goldman's forecast of a significant jump in Sims' margins. The broker's 2H earnings forecast for the company is well ahead of consensus too.

Conviction buys for the February reporting season

Goldman is also tipping great things for zircon and titanium dioxide producer Iluka Resources Limited (ASX: ILU). The company is also on its conviction buy list.

The miner has the potential to deliver above consensus as the zircon and titanium dioxide markets entered a 3-year deficit last year. This lack of supply is driving up prices for the commodities.

Another ASX 200 share that is on Goldman's conviction list is Healthco Healthcare and Wellness REIT(ASX: HCW).

The broker believes that the market is underappreciating the real estate investment trust (REIT)'s upside potential driven by its solid balance sheet, relatively secure income stream, and ample external growth opportunities.

ASX 200 shares that look appetising

Meanwhile, salmon producer Tassal Group Limited (ASX: TGR) could also prove to be a good catch, according to the broker.

"TGR is set to report a strong 1H22 result, with further momentum to build through FY22 as a beneficiary of significantly improved market supply/demand conditions," said Goldman.

Finally, Domino's Pizza Enterprises Ltd (ASX: DMP) shares could also deliver a pleasant surprise.

The fast-food chain came under pressure recently due to its disappointing performance in Japan, but Goldman thinks its results may trigger a turnaround.

The broker believes Japanese trading conditions are starting to improve and that management's growth initiative Project Ignite will drive stronger store rollouts in Australia and New Zealand.

Motley Fool contributor Brendon Lau owns Iluka Resources Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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