Earnings season – likely winners and losers

We head into the first earnings season of 2015 with the global economic growth still somewhat sluggish, which could prompt investors to favour more defensive dividend plays.

Singapore Marina Bay Sands
Source: Bloomberg

The weakening overall demand outlook has depressed prices of various commodities, and has spurred various central banks to adopt looser monetary policies. 

The European Central Bank (ECB) and Bank of Japan (BoJ) have been among the more active ones in weakening their currencies, which helps shore up their markets.

However, the continued slump in the Chinese property sector that supports many other industries is likely to continue to weigh on wider investor sentiment.

Until home prices turnaround, it is difficult to see any market rallies being sustainable.

Potential winners based on macro strategy

DBS Group Holdings (DBS)
Expected impending US interest rate hikes will likely be beneficial for Singapore banks as they will be able to reprice their assets much faster and by a bigger magnitude compared to their liabilities. This will help lift their margins. DBS with its strong deposit franchise in Singapore is likely to be the biggest beneficiary of higher interest rates. The stock grew 20% last year, beating the local market by 14%.

StarHub (STH)
The telco has been reporting positive net additions to its Pay TV customer base in recent quarters, despite the growing popularity of streaming services. This suggests some stickiness in subscriber numbers, but it will help in another quarter of stable growth. Some positive upside surprises could come from mobile and fixed network services, particularly as 4G networks spur mobile data consumption. With a dividend yield of currently around 4.7%, this also makes the stock an attractive option to accumulate at current prices.

Potential losers based on macro strategy

SembCorp Marine (SMM)
Amid a backdrop of weak oil prices and a softening capital expenditure and investment outlook in the sector, companies in the oil and gas industry are likely to remain under pressure. This will likely weigh on rig builders in the near future, as margins are likely to drop and the risks of project cancellations rise. The stock has also been a popular short sell by technical traders in recent months, and has lost over 25% since mid-2014.

Genting Singapore (GENS)
According to a recent count by the Singapore Tourism board, international visitor arrivals in November fell by 3.6% to 1.14 million in November. This reflected the subpar year for tourism, which has weighed on consumer discretionary stocks. The previous quarterly results saw a record low profit and the weak backdrop in tourism numbers do not offer any optimism. With a price to earnings ratio of over 22 and a dividend yield under 1%, investors are likely to find better bargains elsewhere.

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