Without doing your due diligence, holding stocks during reporting season could be a double-edged sword, as volatility increases with the unpredictability of results. As reporting season warms up, many investors will be looking to add and reduce holdings in their portfolio. Here are some of the sectors you should be watching this reporting season.
Iron ore sector
The iron ore spot price has soared to 5-year highs in 2019, pushing beyond $125 per tonne on the back of global supply shortages. Despite lower outputs, operational problems and maintenance issues, iron ore producers are on track for a bumper reporting season.
As a result, investors in BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) have been rewarded this year with surging share prices. The soaring iron ore price has allowed these companies to cut debt and re-order their balance sheets. This reporting season should therefore see shareholders further rewarded on the back of replenished cash flows.
The outlook for iron ore remains positive with ongoing supply shortages and continued global demand.
Buy-now-pay-later sector
Companies in the rapidly growing and maturing buy-now-pay-later (BNPL) sector are expected to report record growth this reporting season. Current players in the sector are Afterpay Touch Group Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P), which target members of generation X and Y. In addition, the Humm service from FlexiGroup Limited (ASX: FXL) is a new addition to the sector, targeting bigger spending consumers.
Zip reported results for the first quarter of FY19 last week, which saw the company smash its full-year financial targets. The strength of the sector was reflected with Zip reporting that transaction volumes had more than doubled and growth in customer numbers exceeded expectations.
Auto sector
The Australian auto market continues to be soft, with the sector coming under pressure from soft economic conditions and tighter lending practices among financiers. New car sales for June released earlier this month extended the decline to 15 consecutive months. Industry leaders believe that new luxury car taxes being introduced in Victoria and Queensland could drag the sector even further.
Last week, GUD Holdings Limited (ASX: GUD), which has a subsidiary that manufactures car parts, reported weaker than expected earnings that could reflect a soft auto sector. Experts are hopeful that the Reserve Bank of Australia's interest rate cut in early June and more competitive deals from car dealers could turn the market around.
Some stocks to watch in this sector include Carsales.Com Ltd (ASX: CAR), Automotive Holdings Group Ltd (ASX: AHG) and AP Eagers Ltd (ASX: APE).
Foolish takeaway
Reporting season can be extremely volatile and investors need to remain vigilant of market consensus and expectations. The most prudent strategy is to manage the risk of your portfolio and conduct due diligence by checking company announcements and sector outlook statements.
