Call me an optimist but Stockland Corporation Ltd's (ASX: SGP) solid market update bodes well for the broader Australian economy.
This comes at a critical time for investors as the market is bracing for this month's confession season that will see companies make the obligatory profit guidance announcement should their earnings vary by more than 15% from the prior year.
There's barely eight weeks left in this financial year and company boards will soon have a sense of how the full year performance is shaping up.
Analysts are downbeat. The 2014-15 consensus estimates for earnings growth has been wound back to a big fat zero, according to the latest report by Morgans.
Growth for the next financial year is hardly any better at 2%. That really means zero growth again once inflation is taken into account.
That's a problem because the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is trading on around a 16 times price-earnings (P/E) multiple – or 15% above historical valuations.
However, I think the risks are to the upside, meaning we could see more pleasant surprises than disappointments over the next month or two.
One reason why I am taking the "glass half full" attitude is the Federal budget. I believe the budget will be mildly stimulatory for businesses with the government putting job creation ahead of their budget surplus ambitions. The stimulus will be funded from cuts to upper-middle and upper income household entitlements.
More importantly, I don't think we will need to see a clear turnaround to sluggish economic fundamentals to see a pickup in business activity.
Sure, our sputtering economy is a drag on corporate profits but the downbeat operating environment afflicting many sectors is also driven heavily by the total lack of business and consumer confidence.
This is why investors should be paying attention to what shopping centre operator and residential property developer Stockland is saying.
The property group rallied 1.4% to $4.51 after reporting the strongest growth in specialty retail sales since 2009 of 4.9% for the March quarter.
The best performing categories at its malls are communication technology, homewares, food catering and retail services. Travel agents, cinemas and non-food mini majors were also strong performers.
Mini majors refer to chain retailers with smaller format stores compared with department stores. Some notable names that would fall into this category include JB Hi-Fi Limited (ASX: JBH), Dick Smith Holdings Ltd (ASX: DSH), Athlete's Foot owner RCG Corporation Limited (ASX: RCG) and Millers fashion outlets owner Specialty Fashion Group Ltd. (ASX: SFH) – just to name a few.
This is only one data point and we should be careful about reading too much from the data, but it's comforting to see consumers opening their wallets again.
Stockland's residential housing division is also performing well with home deposits for the first three quarters of the financial year ending June 30 hitting a five-year high, despite limited home availability in key Sydney projects.
While home sales in other states have moderated, management said that confidence is "re-emerging following the Queensland election" while Victoria is still looking "robust".
Again, this is only one company's assessment although it should still go some way to allay fears of a marked slowdown in residential developments. That's good news for building material suppliers like James Hardie Industries plc (ASX: JHX), Boral Limited (ASX: BLD) and CSR Limited (ASX: CSR).
Boral and CSR have announced a joint venture for their Queensland bricks operations.
I have a positive view on the retail sector and I see buying opportunities in this space, and I have a neutral view on building materials as I think most in the sector are fairly to fully valued after their strong run since the start of this calendar year.
