PRINCIPLE OF FINANCIAL MARKETS

Principle of financial markets

Principle of financial markets

Analysis

Investors will either take earnings on board or reward stocks that have clearly done well, or choose to ignore good news and continue to take cues from macroeconomic worries overseas.

To borrow one of the government's current election clichés, it will either be a vote for moving forward, or a vote for going back; a vote for earnings-backed share price growth or a vote for economic malaise, investor trepidation and falling markets. It will be, in short, a vote for the bulls or for the bears.

Either way, we expect fundamentals to be good overall.

We expect that the balance of results will surprise marginally on the upside. This is in contrast to six months ago where market sentiment was riding the crest of euphoria following the rapid recovery in 2009 and we expected that not all companies would be able to perform to these expectations. In these uncertain times, companies will have to be measured by their merits to determine their long term potential.

Beyond the election - what to expect

A major economic focus for market participants will be interest rates, a symptom of Australia's ability to buck the global recessionary trend. The possible threat of inflation rising above 3% may see the Reserve Bank of Australia (RBA) raise rates, but Lincoln does not anticipate significant rate rises if any in the current environment, in the short term. However it won't take long for the RBA to convince itself a rise is necessary should global economic conditions stabilize further. Tax policies implemented following the election may have a major impact on inflation risks going forward. From a Financial Health perspective, our biggest concern is surprisingly not debt.

Lincoln's 10 'hot stocks to watch' in the August 2010 reporting season

Utilizing our unique research methodology, we've identified 10 'stocks to watch' during the reporting season and throughout the second half of 2010. These stocks to watch are potentially quality, long-term opportunities and not only hold a Lincoln Financial Health rating of 'Strong' but are viewed as undervalued, efficient and growing

JB Hi-Fi Limited (JBH)

Home entertainment specialty discount retailer JBH has continued to deliver impressive results and maintain a Strong Financial Health position despite the general weakness in the retail sector. Its robust business model and dominant market position has allowed it to take advantage of the surge in demand for Visual, Computers/IT, DVD and Telco. Growth prospects are promising with more new stores in the pipeline.

Webjet Limited (WEB)

WEB through its two main websites, www.webjet.com.au and www.lotsofhotels.com.au, has been an outstanding performer delivering a four-year average annual EPS growth rate over 51%. Profits have increased significantly as the company benefited from the continuing shift from traditional retail travel services towards internet bookings.

Ramelius Resources Limited (RMS)

Gold miner RMS has the potential to perform well this reporting period due to increased production and record gold prices. The company is in a Strong Financial Health position and continues to show a lot of promise with production at its Wattle Dam underground gold ...