Even though ASX share prices are meant to reflect the worth of a company, over the past 18 months the market has been preoccupied by what's happening externally.
While anxiety over inflation, interest rates, and wars is perfectly understandable, the team at Alphinity were glad to focus on something else last month.
"The February reporting season was a welcome break from the many macro factors that had been dominating individual share price performances," read its memo to clients.
"The fund had a good month with most portfolio holdings which reported delivering strong results, positive outlook statements and, as a consequence, strong share price performance."
Two companies that the Alphinity analysts were particularly impressed with were Woolworths Group Ltd (ASX: WOW) and Medibank Private Ltd (ASX: MPL).
"Common features were strong operational performance, the ability to manage cost pressure from higher input costs through a combination of operational efficiency and pricing power."
So impressed, in fact, they bought both S&P/ASX 200 Index (ASX: XJO) shares.
"We added to our positions in both Woolworths and Medibank Private after their 1H results with increased confidence in their renewed operational momentum with diminishing challenges from COVID disruptions and November's cyberattack respectively."
Both ASX 200 shares have performed similarly in recent times.
Woolworths is 3.4% higher than it was a year ago while paying out a dividend yield of 2.7%. The Medibank Private share price is 3.55% up over 12 months and pays out a 4.2% dividend yield.
Plenty of choppy waters to come
Both are defensive picks, with Woolworths supplying essential groceries and Medibank providing health insurance to Australians.
The Alphinity team makes no apologies for that.
"We continue to see the risk of further negative earnings revisions as the most significant obstacle to strong equity market returns in 2023," read the memo.
"This appears to be, to some extent at least, reflected in current market multiples with the Australian equity market trading at a price-earnings ratio slightly below long-term averages."
But not all industries can deal with the coming economic conditions equally.
"Sector skews continue to be meaningful, with elevated commodity prices supporting short-term resource company valuation metrics and the longer duration sectors continuing to look expensive relative to history."
The market-wide consensus earnings growth forecast for the current financial year is still around 2% to 3%, according to Alphinity analysts.
"With fewer than four months left of the financial year, this looks like a reasonable estimate," read the memo.
"A similar growth rate is forecast for FY24. This might prove optimistic however, as the impact of higher interest rates over the last year is compounding, not easing."
