Saturday, 3 January 2015

Trades I have undertaken in the last week

Given last week predominately was the one between Christmas and New Year I thought I would take an opportunity to review where a couple of the major equity market regions are in terms of anticipated earnings growth (and related) are for both the upcoming Q4 results season but also for full year 2015 using the excellent Thomson Reuters data. 

Let's start with the all-conquering US equity market.  It is interesting to see the sharp progression down in Q414 earnings hopes over the last year.  Inevitably attention will be drawn to the shift in Energy sector earnings hopes (now down to -19.6% year-on-year from +6.6% as recently as 1 October) but what is also noticeable is that with the exclusion of Utilities every sector has seen lower earnings growth hopes versus 1 October.  An interesting juxtaposition with the run of market highs...

 Of course earnings are still growing in aggregate and 'today' 2014 is estimated to end up a 7.5% growth year.  Not terrible but still implies a peg ratio of over x2 (the forward 4 quarter S&P500 P/E ratio is x16.8).  That is not the cheapest I would suggest. 

Correctly though the market looks forward...but even with the newly anticipated 8.1% earnings growth level that is still a >x2 forward peg ratio...and again all sectors versus 1 October are seeing negative earnings revisions (this time except financials).  The earnings follower should be a little concerned about market valuation levels even if equities at face value offer far better value than bonds. 
 
 
So how about Europe?  Well Q4 is a headline bumper earnings quarter due to some easy comps in the financial sector in particular.  Elsewhere there is some relative momentum in telecoms which again is partially from easy comps but also from an underlying earnings improvement too. 
 
 Looking at the FY14 earnings numbers gives a better feel however...and here the reality of the FY14 earnings round becomes more apparent with a lacklustre 4% earnings growth being the current anticipated end result.  Additionally too overall momentum is not great with only the Cyclical Consumer Goods & Services and the Technology sector seeing any positive earnings momentum since the 1 October hopes. 

So what about 2015?  Well the numbers are still coming down (the aforementioned Telecoms sector is the only one with positive revisions at the moment versus 1 October) but at 12% and a forward market P/E ratio of less than x14 earnings based value hunters should be looking towards Europe from a stock picking perspective.  If only the bigger picture backdrop for the region was stronger...
 


 
As I have said before the current range of supply side reforms matter hugely for Europe.  If progress is apparent there then there is a lot of potential in the European markets.
 
So how about trades this week.  Just three to report:
 
I bought some Coca-Cola Hellenic Bottling in London after it made my 'top 15 global stocks for 2015' list...but I realised I did not own any.
 
I top-sliced some Lafarge after building my position up strongly in European market weakness in December.  I really like the Lafarge story into 2015 but with European names - for some of the reasons noted above - I think you have to trade them a bit.
 
Finally I instigated a short position in Quindell following some excellent investigative work on the Share Prophets website (which regular readers will know I also write for). 

  


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