This reporting season, we witnessed a good test of the health of our market in the wake of consecutive rate hikes.

The XAO has continued to trade steadily sideways.

Reporting season clarified how quality stocks with a history of good growth, such as Goodman Group (GMG) and Cochlear Ltd (COH), were worth valuing higher.

ASX Ltd, CSL Ltd (CSL) and Ramsay Health Care (RHC) were a few of the stocks sold off decisively after reporting. The drop in value left investors wondering how much further these shares will fall; as they had already been falling prior to the announcements.

The big end of town supported stocks paying good dividends.

To those whose portfolios fell in value, think of this experience as a wake-up call to enable you to start taking more control of your investments ahead of the next reporting season. Otherwise, much more will be at stake if you are ill-prepared when the next market crash occurs towards the end of the decade.

Remember, you cannot control what the market does, the only thing you can control is what you do.

Now, let's look at five winners and five losers this reporting season to understand the opportunities and risks, and identify the stocks that are more likely to rise from here.

Let's kick things off with the five losers, though it is not a case of bad news first, as this is about having a contrarian view. The losers this reporting season may present the best opportunities in 2024.

The losers

1. ASX (ASX:ASX)

On August 17, ASX Ltd reported Earnings Before Interest and Tax (EBIT) down 7.8% to the June 30, 2023, Underlying Net Profit After Tax (NPAT) down 3.4% and Statutory Net Profit fell by around 37% due largely to the Chess replacement costs.

The Board cut the dividend by 3.4% for the financial year to June 30, 2023. ASX pays out 90% of underlying NPAT, however, lower profits and news of lower dividends makes the ASX an easy target for short sellers.

ASX is an interesting stock, plagued by criticism over a major project to replace CHESS. This project has a high degree of difficulty given the number of stakeholders, replacement costs and risks. Late last year ASX paused the CHESS replacement program and in March this year ASIC opened an investigation into the ASX's oversight of the CHESS.

ASX's share price clearly reflects the uncertainty and the risks the market sees with the CHESS replacement program. Revenue is down, and costs are up, which is not a recipe for growth in the stock price.

In November 2021, ASX Ltd peaked at $95.83 before falling by 41% to a low of $56.61 on August 22, 2023. The recent fall is part of an exhaustion of the sellers, however, the next low is still to be confirmed.

Although ASX has the potential to trade up to between $75 and $80 over the next couple of years, the stock price continued to fall to $55.69 on September 5. Trade volumes and merger and acquisition activity will need to increase ahead of a rise. Investors want to see more certainty around the CHESS replacement and consider that the share price is still at risk of a further decline in the short term.

2. AWC Ltd (ASX: AWC)

When AWC Ltd (AWC) reported on August 22, 2023, news of a net loss after tax (NLAT) of $43m, compared to a net profit after tax (NPAT) of $168m for the first half of 2022, and no interim dividend drove the share price lower.

The Board had to expect the consequences of the decision to cut the dividend would put institutional investors offside in a time when stocks providing good yields to shareholders are valued highly.

AWC's share price is trading in a long-term decline which followed the high of $3.20 in October 2018. In the current climate, the stock could continue to fall in value for months.

AWC's dividend yield was above the market average for five years so this is a big disappointment. AWC's share price fell by around 8% on reporting.

AWC has long been considered a volatile stock and one of the biggest challenges for AWC is the uncertainty around ongoing delays for mining permits in WA and falling commodity prices. Both factors can significantly increase the volatility of an already volatile stock.

For example, AWC fell by around 77% from a high of $2.72 in 2011 through to a low of $0.625 in July 2012. This illustrates how FMG is not a defensive investment and therefore it is more suited to highly skilled traders who can carefully time their decisions to buy.

The reason it will continue to be a good short-term trading stock is that it can rise by more than 40% in three to four months.

At the time of reporting, AWC's share price fell to a new seven-year low and continued down to $1.035 on August 30. Although the low may be in, the risk of a further decline is currently high. As AWC is nearing a long-term low, we are likely to see good short-term opportunities in 2024.

3. Resmed (ASX: RMD)

On August 4, Resmed announced double digit revenue, however, guidance for the year ahead was unclear. The technical analysis was also unclear, so it came as no surprise when the stock was sold off heavily.

The company announced underlying net profit up 13% and operating cash flow almost doubled. Although the result sounded good, margins are squeezed. On the 3rd of August, the stock closed at $33.85 and fell below the low of $27.37 in May 2022. Since then, the stock has dropped below $24.

The Board had previously indicated margins were more likely to rise and there were some aspects of the information provided by the Board that the market appeared unclear.

The severity of the sell off can also be related to the risk associated with Health Care stocks right now. CSL, Ramsay and Sonic have been sold off heavily. In the case of RMD, while this could be an over-reaction, the way the stock is falling fits with our worst-case scenario, with a target at around $20.

The key to make a profit with RMD is to be patient and wait for the bottom to be confirmed. Buying the dip is unwise as the risks are high and the recent fall has taken out the low of $27.37 in May 2022, which means the stock is now in a long-term decline not a dip. The current fall makes RMD more interesting, and I would recommend it for any watchlist.

4. Ramsay Health Care (ASX: RHC)

RHC has suffered because of the COVID pandemic, but the Board continue to focus on setting strategies to provide better outcomes for patients and higher efficiencies, which should lead to better returns for shareholders.

On the surface, RHC's results were good given the challenges the company has faced. RHC's total revenue rose 11.6%. In the current climate the market is looking for growth and income and is not rewarding Boards having to focus on driving costs out of the business and reducing debt. So RHC's share price has been punished. But is there more to the degree of this fall?

This is important to think about as it is likely that RHC was sold off due to the company's decision not to accept an offer from private equity giant KKR. Big institutional investors love takeovers, but I applaud the RHC Board for not selling.

The worst part for RHC and other companies like them is how international institutions now have greater influence. The take up of ETFs by investors concentrates the control of our stock market into the hands of big institutions.

Plus, the unintended consequence of the Royal Commission saw Australian banks sell their broking houses to international institutions (excluding CBA), so expect higher volatility unless something changes. It will take another GFC-like event to change investor's dependence on ETFs.

Although the ACCC may be happy as competition may reduce brokerage costs initially, it is now far easier for the big end of town to borrow stock to short sell, which drives stock prices lower, faster.

Unsuspecting retail investors help facilitate this by not knowing to ask whether their broker or their super fund can lend out their shares.

Unfortunately, the fall in RHC's share price is not over. The recent low is $46.76 on August 25, however, the risk exists for a fall closer to $40. We maintain that investors should never attempt to catch a falling knife and wait, as there will be a better time to buy RHC.

5. Wisetech Global Ltd (ASX: WTC)

On the 23rd of August WTC appeared to present a glowing report. WTC's revenue rose 29% to $817 million from the prior year, underlying net profit after tax (NPAT) was up 30% to $248 million and the company lifted its dividend by around 30%.

One would think you cannot get better than that. Apparently not, as the share price fell swiftly by around 20% on the day. Investors were left scratching their heads.

And this is where it gets interesting as WTC grew earnings by 21%. Although the company announced high double-digit growth, the result was below the company's forecast, making WTC an easy target for sellers.

We are often asked by investors why their shares have fallen when financial results were strong. Two of the biggest reasons for this are company earnings were below guidance or the dividend was cut, and the damage was worse if it was both.

The sceptic in me says the institutions are using the opportunity to short the stock and then buy back in at a lower price.

WTC's share price had risen strongly in the lead up to the announcement and was looking a bit stretched, so you could say WTC was due for a fall.

WTC is a great company, in the right sector for growth and the share price trends well, making it easy to trade. So, we should see WTC bottom out over the coming months before another opportunity presents later this year or in the first half of 2024.

On a cautionary note, investors still holding need to decide how much of the profit to give up as it may continue to fall. Have a good set of rules to exit if the risk of continuing to hold becomes too high. Remember, your priority is to protect your investment.

On occasion, stocks you expect to bounce back quickly can take longer to recover. We will know which one applies to WTC in the next one to two weeks.

The winners

1. Goodman Group Ltd (ASX: GMG)

Goodman Group (GMG) reported to the market on August 17, with earnings coming in ahead of previous guidance.

GMG's operating profit was up by 17% to $1.78 billion, which was a good result. Revenue was down by 5.9% to $1.97 billion, and the company reported that portfolio occupancy was up at 99%.

The company's gearing was around 8% and is below a market yardstick of around 30%, which gives GMG room to move when opportunities arise.

GMG is our preferred choice in the real estate sector and is a great stock for medium to long-term investors when the time is right. The time to be cautious, as the GFC demonstrates is when we see Euphoric buying of stocks, when even the taxi drivers are talking about the market.

GMG fell by around 98% in the GFC. The next big correction is likely towards the end of the decade, when real estate stocks will again be sold off heavily.

On the day, the stock rose by 5.7% and continued higher by around 7.3% the following day when news of the result was circulating. Although GMG is taking a breather for now as the stock price pulls back, however, a further rise is likely into 2024.

2. Cochlear Ltd (ASX: COH)

COH released a great result on August 15. The company declared record annual revenue of $1,956 million, up 19% and underlying net profit of $305 million, up 10% and at the high end of the forecast.

COH has several projects underway to continue to support opportunities for earnings growth. Demand remains high for Cochlear and acoustic implants. Although the dividend is unfranked, the market appreciated a rise in the dividend of 21% on the previous corresponding period.

The news was enough to push COH's share price to a new all-time high. The rise indicates that COH's share price is likely to continue above $300 in the coming months. With a healthy result and growth in the share price there is not a lot more to add.

The share price is likely to slow and pull back temporarily prior to the next rise and this could be a good opportunity to pick up the stock ahead of the next rise.

3. Ampol Ltd (ASX: ALD) -15.46%

ALD reported on August 21 and the share price rose strongly. Statutory net profit was $795 million, up a whopping 42%.

ALD's dividend was down from $1.20 to $0.95 or around 20%, however, the company promised a special dividend of $0.50 which pushed the payout higher. The current dividend yield for ALD is around 6.5%.

The market loves special dividends, and it showed in the share price which appreciated nicely on the day. The stock closed at $32.57 on the day, up 3.75% from the prior day's close and has continued higher to around $35.

The challenge for ALD's share price is the heavy resistance to a further rise at around the $35.50 level. The stock has pulled back several times from this level and although the current financial performance is good, the market is not prepared to pay much higher.

ALD trades up to this level and is sold down, so it has not been good for long-term investors. The stock is still risky but has the potential to break up to a new all-time high in 2024.

4. Harvey Norman Holdings Ltd (ASX: HVN)

Australian retail sales have fallen for three consecutive quarters to June 30, 2023, so it was no surprise when HVN reported to the market on August 30 that revenue fell by 3.8%. Net profit after tax (NPAT) was down a massive 33%. Not a great result.

HVN also cut the dividend by 33% and surprisingly the stock price rose 5%. This is interesting in a season where stocks were rising on news of a higher dividends.

The light at the end of the tunnel for HVN is the plan to deliver on the company's Malaysian expansion plans, with an increase from 28 stores to 80 stores to go into Malaysia by 2028. HVN has already rolled out 30 stores and is on track to complete 38 stores this year. The market likes the growth story.

The short-term trend is up for HVN's share price and it has rebounded off a long-term low. HVN's share price tends to be quite volatile, so it is still too early to confirm whether the move is a change in trend or just a short-term rally.

The stock has the potential to rise to between $4.60 and $5 in the short to medium term and in coming weeks expect to see the share price take a breather for at least a couple of weeks before it rises again. The key to the direction will of course be retail sales data in the last quarter of 2023, and July has so far been positive.

5. Brambles (ASX: BXB)

BXB reported to the market on August 30 with double digits and the market applauded the result. Sales revenue up 14% and underlying profit up 19%. Earnings per share rose by 26%, which shows that BXB really has turned a corner from a few years ago and appears likely to continue to perform well in the next couple of years.

BXB's raised the dividend above analyst expectations from US$0.1225 cents to US$0.14 cents. The share price gained around 7% from the prior day's close at $15.15 to trade to a new all-time high of $15.26.

In February, I mentioned how BXB had struggled to break above a long-term level of resistance at around $13.74 and our analysis indicated that BXB would trade to a new all-time high this year.

When the movements in the share price correspond to what the analysis indicates is likely to occur future performance is more easily predicted. Looking ahead, BXB is likely to pull back temporarily in the short term before trading higher.

Consider the risks with this stock as the volatility is high and therefore it is not for the faint-hearted. BXB is likely to pull back before moving higher.

Key takeaways

Overall, this reporting season was positive for the Australian market. Higher dividends were rewarded as the market continued to look for income and value stocks. Those companies that missed guidance were punished, even if results were positive.

Learn from reporting season. Most people focus on the results.

You could watch the share price of your favourite stocks in the lead-up to reporting, take note of how far it rose on the day and watch the direction weeks after the result is announced. This will help you to read the direction better in future and give you clues about what to look for to pick the winners ahead of the next round.

Remember, go for stocks rather than index ETFs, as good stocks will outperform the market.

You will do better owning a dozen shares in say the S&P/ASX 20 than an index ETF which replicates the overall market. Also, ETFs make investors complacent, and they will miss the signs ahead of the next protracted market correction towards the end of the decade.

Reporting season has continued to support our view on the outlook for the Australian market which is likely to be volatile in the short and bullish in coming years.

But whether the market rises or falls in the short term is irrelevant, what is important is that you be very selective about the stocks you buy and stay clear of penny dreadfuls.

Choose companies with good earnings forecasts, only buy if the share price is rising and have a good exit strategy.

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