Discerning investors look to fundamentals, says PGI
Investors are moving from an environment of 'hope' to a 'show me' phase in which company fundamentals are the primary drivers of stock prices, according to Principal Global Investors (PGI).
PGI global chief executive Jim McCaughan said investors are more discerning in the wake of last year's stock rallies.
"Last year saw an optimism that led to across-the-board rises in value, often irrespective of the quality of the stock concerned. Consideration of fundamentals - company specific cash flows, margin trends and bottom line earnings - took a back seat," McCaughan said.
However, he said investors are now scrutinising company results during the current reporting season and some companies might see a fall in value as they fail to demonstrate top line growth and earnings capability.
Alternatively, he said some companies that lagged behind in the recent bull market run have demonstrated resilient revenues and earnings streams.
McCaughan said some of the things to look out for when selecting stocks in a recovering market include identifying value, which could be found in a stable, attractively priced company that performs well, with its earnings and profitability based on top-line performance and not cost cutting; a lack of debt; profitability; and strong demand for the product or services.
He said it is also important to factor in global economic shifts that have created increased demand from new markets.
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