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US Reporting and US & ASX Market Valuations

By James Gerrish 4 Nov 2012 3:28 PM

 Today we feature this special report with our thanks to James Gerrish, Portfolio Manager at Novus Capital Ltd in Sydney which he wrote at www.mymarketview.com.au on Monday 29 October: 

 US Reporting

* The US reporting season continued last week and there are a couple of obvious themes playing out. Collectively, earnings have beaten expectations 62% of the time according to Bloomberg data which is pretty much in line with historical trends. 

* When you drill down into the composition of these earnings though, one element that we monitor closely is revenue. We put a lot emphasis on revenue because it’s a good indication of top line growth and takes out the impact of cost cutting measures - reductions in provisions and the like. 

* Revenues have only beaten expectations 37% of the time for S&P 500 companies so far, which is below the historical averages. This explains why a lot of the company CEO's in the States have been relatively downbeat even when headline earnings have actually held up pretty well. 

* That said, economic indicators in the US seem to be picking up in Q3 - the housing market is an example of this as the chart below shows - and this has helped to support an uptick in US economic growth from 1.3% to 2%. Clearly this should be a positive for US corporates and their Q4 numbers. 

* So, this prompts the obvious question of valuation; Is the market still cheap or are valuations stretched?

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