What should investors seek from the third quarter earnings reports that have started hitting the market? How should they position for robust returns? Let me share a few here.
Go back the two previous quarters to review the performance pattern within the current financial year of any company in question. In other words, what has the earnings trend been like in the first and second quarters?
Please note that companies with consistent incremental performances are most suitable for investment purposes as the probability of a better last quarter performances are higher in those. You might choose to dwell on the reasons for the inconsistent performance patterns, including the fact that some companies do have cyclical sales trends for which reason the quarterly performances are bound to vary sharply. Note such stocks and act appropriately.
Add up the three quarter earnings that you now have to see what the average performances would be. Or better still, find the average of the last four quarters, that is, add the three current quarters and the fourth for previous year, the divide your answer by four to get the average. This is important to project what the dividend possibilities are. To do this right, you might now need to consider previous year’s performances to see any similar trend or divergence. Companies with identical trends with previous years’ performance level are easier to project than those with divergent trends. In cases of divergence, seek to know what the issues are so as to take advantages or cut your loss swiftly.
The industry wherein the companies you are researching operate is key. For example, manufacturing concerns tend to release audited reports to the market faster than banks and insurance stocks. Equities like Vitafoam, Forte Oil, United Capital, and Nestle as well as in some cases, Cadbury are known to be among early fliers in the market every year, as their results often hit the market between four to eight weeks after the end of the financial year. But you would agree with me that banking stocks are not so, even as they are still a lot better than their insurance cousins in the release of quarterly and audited reports as reflected particularly in the last three financial years where most insurance companies grappled with new challenges posted by the new international accounting standards.
Summarily, note the period to expect the audited result with the release of the third quarter result and position right.
Please note that quarterly results alone will not determine equity prices even in the very short-term, as a result, learn to keep tab on the prevailing market situation to measure the probable impact of the third quarter performances on stock prices. In other words, positive earnings in an uptrend will most probably lead to further uptrend, while positive earning in a downtrend might not impact much. Negative earning in an uptrend won’t move price up in as much as the decline might not be sharp.
Ten per cent price circuit will propel a fast reaction to earnings report, leading to early equilibrium price level in response to earnings.
The implication of this is that positive results might not experience a bull run for more than a week after which profit takers will besiege the market to slow down price activities, ditto negative earning. The best every investor must learn to do at this point is to be technical-analysis compliant for the best of short term market play in anticipation of quarterly and full year audited reports.
Investors who may not be desirous of technical analysis skill could be shooting themselves in the foot because they might be buying at the end of an initial rally in response to positive earnings as profit takers dump on their head while traders will re-enter when audited report are near in equities where projections on final dividends are positive.
The expected interim dividend companies in third quarter are:
Ambrose Omordion
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