Heading into August, we had 12 JSE All Share companies reporting results, with Bloomberg having estimates for 9 of these companies. Five companies surprised positively, with the most notable being Anglo Platinum coming in 33.8% higher than consensus. Anglo American surprising by 12.4% and British American Tobacco coming in 2.4% ahead of expectations.
The SA earnings season will be gaining momentum this week with Nedbank, Mondi, MTN and Old Mutual, some of the bigger names reporting interim results.
In our recently published IJG Elephant Book (EB), it was noted that we are cautiously optimistic about the market looking for positive earnings reports that will see the price multiples de-rating and our timing tool moving into favourable territory, with the market looking to change gears and rally into the year end.
The positive earnings together with the recent weakness actually sees our timing tool now predicting a 91.3% probability that the Top40 will deliver positive returns over the next three months, with the average 3 month return from this quadrant being 7.3%.This quadrant ranks 3rd in our heat map of probabilities of positive returns.
Coincidently our timing model was in exactly the same quadrant end of January, with the same fundamental background which entailed strong earnings reports and diminishing market breadth. The Top40 delivered 8.0% in the 3 months thereafter and 12.7% to date.
Given the favourable stance of our timing model, we will be looking to buy this dip and increase gearing levels should earnings continue to pleasantly surprise and if market technical shows signs of support. We will thus be buying into the soon expected market strength.
As we highlighted in our Secular Bull piece, we will closely evaluate GDP revisions, inflation revisions, corporate earnings reports, market breadth and the US yield curve together with our timing tool for predictions of a looming bear market. As we right this article none of these indicators suggest that a growling bear is on the horizon.
Once we start hitting the buy buttons we look to focus our attention around our most preferred names listed below:
