Don’t let the August reporting season go to waste, fellow Fools. This bi-annual event is an opportunity to evaluate and adjust your ASX portfolio, and the nearly completed profit season has taught us plenty.
The 2.5% rise in the S&P/ASX 200 Index (Index:^AXJO) is hint enough that the results have been better than expected.
ASX stocks that have bested expectations during this period tend to continue to outperform over the next few months. There’s no reason to think this time will be any different and there’s two stocks that I believe have a bright outlook for FY21.
Big Wow from reporting season
The first is the Woolworths Group Ltd (ASX: WOW) share price, which is lagging behind its rival Coles Group Ltd (ASX: COL) share price.
Coles may have produced a slightly better profit figures for its supermarket business, but I think Woolies stole the show.
It’s not the performance of Woolworths supermarkets that caught my attention, but its embattled Big W department store.
Faster than expected turnaround
I had low expectations for the department store chain, which suffered from falling comps (sales growth from stores opened at least a year).
But Big W hit it out of the ball park with a 32% increase in comps for the June quarter. The store benefited from stuck at home consumers snapping up IT, education and entertainment products during COVID-19.
The big jump in sales may not be sustained but the result is boosting confidence in the turnaround of the group’s Achilles’ heel.
No one will call the Woolworth share price cheap. But with a much brighter FY21 outlook for Big W and ongoing tailwinds from the pandemic, I believe there’s more room for the stock to climb.
Low hanging fruit
Another stock well placed to outperform in the current financial year is the Costa Group Holdings Ltd (ASX: CGC) share price.
Shares in the fruit grower surged 11.8% to $3.31 on Friday after it posted its half year results. To be honest, the numbers weren’t that great for its local operations, which accounts for over 70% of group sales.
But investing in shares is all about the future and not the past, and the outlook for the rest of 2020 is looking sweet.
Bright outlook to support Costa’s share price
The group’s international business is going gangbusters as sales surged 43% to just under $120 million compared to the first six months of 2019.
Some analysts thought the international business could be the weak link for the group and this explains the re-rating on Friday.
The outlook for the local division is also improving thanks to more favourable weather. The drought lobbed around $15 million from group earnings in the Tomato and Berry categories. But crops have fully recovered in May.
This is one stock that is unlikely to be impacted by the COVID-19 uncertainty. And assuming the weather remains favourable, the stock is likely to remain well supported over next six months, if not longer.
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More reading
- 5 things to watch on the ASX 200 next week
- 5 top ASX dividend shares you should never sell
- ASX 200 drops 0.9%, Costa reveals healthy result
- Is the Woolworths share price in the buy zone following its FY 2020 results?
- Why Coles is a top ASX dividend share for a post-COVID world
Motley Fool contributor Brendon Lau owns shares of Woolworths Limited. Connect with me on Twitter @brenlau.
The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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