What we learnt and where to invest after reporting season

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Over the last few weeks, the Aussie sharemarket has been grinding higher and last week hit a new yearly high. Better than expected economic data is supporting this rally, with the unemployment rate falling further than expected, while the majority (91%) of pandemic-deferred loans now being repaid.

Despite Victoria's five-day snap lockdown, Australia's economic recovery overall is intensifying - which is having positive flow on effects into the market. With the COVID vaccine rollout commencing this week, many are betting on a return to normality.

As reporting season wraps up, here are three themes to watch.

which shares to buy after reporting season

Reporting season beats expectations (for the most part)

For the most part, results have beat expectations and overall, there's been more companies upgrading earnings than downgrading. As at Tuesday, February 23, of the 167 companies who have reported, 55% beat expectations, 34% % were in line, and 11% delivered weaker than forecast numbers.

Aside from mining companies punching above their weight, the underdogs of 2020 have been shining during this reporting season - insurance, telcos and financials have reported the biggest growth in earnings per share (EPS) of 11%, 8% and 6% respectively.

On the flip side, tech and gaming have seen the biggest declines of 3% and 2%.

As an investor, reporting season is the perfect opportunity to reassess your portfolio and identify your next investments. Look to broker research, media coverage and the results themselves - to really get under the hood of the company and gauge how healthy it is.

If you're holding onto a company which has been downgraded, review the initial reasons why you invested in the company, consider the long-term outlook and look to see earnings will still be growing. If these no longer are relevant or stand up to scrutiny, it may be time to sell the stock.

For opportunistic investors, if you are looking at companies that have just been downgraded, it's likely that their share price would have fallen, so this could pose as ideal time to buy-in. Again, it's crucial to do your research before making snap decisions. But remember, over the long term, companies with growing earnings, cashflow or revenue and good management should shine brightly.

Rising AUD to benefit importers

From the perspective of the Reserve Bank of Australia (RBA), they want a lower AUD as it makes Australia more competitive.

Since November, the AUD has actually gained 10% because the USD has continued to fall. But did you know, the AUD would be a further 5% higher if the RBA hadn't been buying bonds since November - a fact shared by the RBA Assistant Governor last week.

As part of the RBA's quantitative easing (QE) program, the bank has doubled down on its bond buying program, and will be buying state and federal government debt until at least September. If the RBA sticks to this timing and stops purchasing in September, there is talk the AUD could rise to 85c.

Regardless of that, the AUD is continuing to move up, and the USD is continuing to move down - and importers are beneficiaries of this.

So, consider importing companies who are already doing well and present further upside opportunity, such as Accent (ASX: AX1), Baby Bunting (ASX: BBN), Bapcor (ASX: BAP), Beacon Lighting (ASX: BLX), Lovisa (ASX: LOV), and Michael Hill (ASX: MHJ).

Inflationary risk on the horizon?

The oil price rallied to a brand new 13-month high last week, after rising 29% so far in 2021, and collectively gaining 260% from the April 2020 low. This is positive news for companies in the oil industry, which is rebounding from last year.

However, the rally has the market weighing up what higher prices (inflation) means to the consumer and business world.

Oil prices and levels of inflation are quite connected - and tend to have a cause-and-effect relationship. Meaning, when the oil prices move up, inflation follows in the same direction. Ultimately higher oil prices tend to slow down an economy, as people aren't able to buy as much and business costs increase.

So, in the short term, oil prices are likely to continue to rise - particularly given the freezing US weather, which is limiting supply, while demand continues to rebound. So, it might be worth looking at oil stocks if you already haven't, like Santos (ASX:STO) which is scaling up its growth projects, and benefiting from the oil price lift, or Woodside (ASX:WPL) Australia's biggest oil company.

However, over the longer term, a cleaner economy continues to be a priority. Many of the world's largest oil producers, including Royal Dutch Shell and BP, have announced a scale-back in production and are investing heavily in renewables.

However, for at least the next decade, there will still be significant demand for oil. With supply potentially petering off, prices look to remain bolstered.

But more imminently, with rising oil prices, and higher inflation, you could consider hedging against inflationary risk. Traditionally gold and real estate assets do well when prices rise. From a gold perspective, you could consider stocks like Australia's biggest gold producer, Newcrest Mining (ASX:NCM), or smaller gold producer, Regis Resources (ASX:RRL).

On the real estate and property stocks side, don't add just any companies to your portfolio. Double down and consider the trends in the sector and recall the industrial property sector is benefiting from the shift to working at home amid COVID-19.

With this in mind, it might be worth considering industrial property giant Goodman (ASX:GMG), who owns and leases assets to Kellogg's, Toll, Linfox, DHL, Wesfarmers and Coca-Cola. Goodman has been consistently growing its income, profits and dividends for many years and is also striving to be carbon neutral before 2025. Goodman has been installing solar on the rooftops of their assets, and continuing to develop sites strategically located near consumers, all to help reduce greenhouse emissions.

What's not to love about a company growing its earnings and reducing its carbon footprint. Sounds like a recipe for long-term share price growth to me.

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Jessica Amir is a market analyst and media presenter for Bell Direct, Desktop Broker and Bell Potter Online. She has more than 14 years' experience in financial markets.