There's good news for those who feel they've missed out on the share price surge of ASX stocks that delivered better-than-expected results. It may not be too late to buy them after the fact.
History shows us that these reporting season champs have on average continued to climb in the months after they post their results.
There are plenty of ASX winners to pick from too. The list of ASX stocks that have surged ahead or broken new records on the back of good results is pretty long, and we are only little more than half way through the busiest part of reporting season.
Profit season record breakers
A few recent examples include the CSL Limited (ASX: CSL) share price, Monadelphous Group Limited (ASX: MND) share price, Cochlear Limited (ASX: COH) share price and Wesfarmers Ltd (ASX: WES) share price.
Good on those who've been able to pick these stocks before their earnings numbers were made public. But trying to pick the winners before the results is fraught with risks. Not even the experts can do this consistently.
Buying the best reporting season winners
It could be a much safer strategy to buy the outperformers the day after they release their profit news.
Data over the last nine reporting season complied by Bell Potter's high-profile trader Richard Coppleson showed that the top 20 stocks of the reporting season continued to outperform months later.
These top 20 movers jumped on average 14.7% the day they released their results, and they continued to climb another 1.4% over the next four months.
Tiny drops make an ocean
This may not sound like much, but what's also clear is that this group managed to keep ahead of the S&P/ASX 200 Index (Index:^AXJO) over that four months in every instance.
Even if you missed the first day share price surge, as many of us do, the group still kept ahead of the ASX 200 by 0.1%.
Before you thumb your nose at the small margin, remember that most portfolios outperform over the longer-term not by picking the big winners, but by avoiding the big losers.
Reading the fine print
But as with anything, there are caveats you need to be aware of. Firstly, just because it's happened in the past, doesn't mean it will in the future. Current macro conditions are very different to the last nine reporting seasons, although fortunately, record low rates are supportive of equities.
The other thing to remember is that Bell Potter's numbers are averages. This means you need to buy enough of the top 20 profit season winners to get similar results and you need pretty deep pockets to do this.
Picking only a few of the top 20 will likely give you a big skew to the upside or downside, you can never really know.
I am also not advocating that you use this as your primary investment strategy. What I find most interesting about the data is how it can help limit the risk of investing in a loser.
