Earnings season is upon us, with resources stocks poised to report sharply higher profits thanks to resurgent commodity prices. We'll get our first look from Rio Tinto Limited (ASX: RIO) when it releases results later this afternoon.
According to Nikko AM's head of Australian equities, Brad Potter, investors moving to cyclical stocks such as miners, coupled with the potential for bank stocks to rally further, will power the ASX 15% higher in 2017.
We'll know more as earnings season gets into full swing.
Personally, I have my doubts that banks can rally much higher from here. Trading on a P/E of 15, it's hard to make the case that a company like Commonwealth Bank of Australia (ASX: CBA) is cheap, especially given profits and dividends are expected to grow at a snail's pace.
As for mining stocks, anything is possible. I'm holding on to my BHP Billiton Limited (ASX: BHP) shares for the ride, hoping they can run as high as $30.
Momentum and a strong iron ore price can do wonderful things. But greed has a nasty habit of biting you in the bum. In time, I might yet regret not sticking to my guns and selling my BHP Billiton shares once they first broke back through $25.
Earnings season is off to a flying start for a couple of our Motley Fool Share Advisor recommended stocks.
The Carsales.Com Ltd (ASX: CAR) share price has jumped 7% higher in early trade to $10.80 after reporting a decent set of results and forecasting solid growth in both its domestic and international businesses. For a growth stock, the almost 3.6% fully franked dividend yield — which grosses up to over 5% — is very attractive. I hold.
But that's got nothing on fellow Motley Fool Share Advisor recommended stock, Premier Investments Limited (ASX: PMV). Its share price soared 12% higher to $14 after the owner of the Smiggle, Peter Alexander, Just Jeans and Portmans brands said it expects to record record first half earnings, up around 10% year on year.
Earnings season. You gotta love it. The time when you see who has been swimming with the tide, and who has been swimming naked.
Earnings season is especially exciting for smaller companies. They can go weeks and months with no news. Then, all of a sudden, kaboom… share prices can literally take off on good news.
A case in point is the ridiculously named mining services company Rungepincockminarco Ltd (ASX: RUL). A strong trading update on Monday saw its share price soar 13% higher to 60 cents.
My guess is most readers will never have heard of Rungepincockminarco. Stating the obvious, the name hardly rolls off the tongue.
Not so our resident small-cap expert, Claude Walker. In June last year, when the share price was just 39 cents, Claude recommended subscribers to his Motley Fool Hidden Gems service buy the stock, saying…
"We've long eschewed mining-related businesses here at Motley Fool Hidden Gems — and for good reason. But the combination of a quality product, impressive management and an attractive software-based business model lead us to believe that RPM has a much better than average chance of succeeding, with a sizeable upside..."
Anyone who was able to buy the shares at 39 cents would now be sitting on a gain of over 60%. Not bad in less than 8 months.
Stating the obvious, small-cap shares come with added risk.
But with risk comes the potential for big rewards, and quickly… something you're unlikely to get by sticking exclusively to the popular banks, miners and supermarkets.
