Your guide to the February ASX reporting season

Investors are bracing themselves for what could be a volatile February reporting season. The market has already seen multiple earnings downgrades from notable companies like Kogan.com Ltd (ASX: KGN), Insurance Australia Group Ltd (ASX: IAG) and Treasury Wine Estates Ltd (ASX:TWE).

According to analysts at Morgans, earnings growth for companies in the S&P/ASX 200 (INDEXASX: XJO) (excluding resources) has been revised from 6.1% to -2.2%. The contributing factors to this downgrade are largely the bushfires and drought conditions, which have weakened stock in the agriculture, retail and travel sectors.

Here are some ASX sectors and stocks you should watch this February reporting season.

Outperformers

The nickel price has gone under the radar of many investors, surging nearly 13% in the past 6 months and trading at multi-year highs. Low supply from Indonesia and the pending future of the Chinese-owned Ramu nickel plant in Papua New Guinea after a waste spill has resulted in a shortage of the metal. Western Areas Ltd (ASX: WSA) and Independence Group NL (ASX: IGO) are 2 nickel stocks on the ASX that could surprise this reporting season as both companies are likely to have received higher premiums for their nickel concentrate.

The gold price also had a strong 2019, finishing the year 18% higher and surging more than 7% in the last 6 months. Despite performing in a strong equity market, the coronavirus hysteria and struggling global markets could see further upside in the gold price. If quarterly reports offer any indication, companies like Newcrest Mining Limited (ASX: NCM) and Saracen Mineral Holdings Limited (ASX: SAR) are 2 gold companies you should watch in February.

Lastly, stocks in the buy-now, pay-later (BNPL) sector are also poised to outperform this reporting season. Despite the introduction of new regulatory codes this week Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) are forecast to report record growth. Both companies have reported rapid growth domestically and overseas.

Underperformers

Stocks in the agriculture sector are earmarked to underperform this reporting season, given the devastating bushfires and drought conditions. Companies to keep an eye on include Elders Ltd (ASX: ELD) and Rural Funds Group (ASX: RFF). Australian Agricultural Company Ltd (ASX: AAC) is also set to suffer from a dislocation between domestic cattle prices and the export meat market.

As seen in the case of Treasury Wines, bushfires and coronavirus could also have tremendous repercussions on stocks related to travel, tourism and the Chinese consumer. ASX stocks in the transport and travels sector have already been sold-off recently given the coronavirus panic. In addition, the recent bushfires have hampered the tourism and travel sector with companies like Flight Centre Travel Group (ASX: FLT) expected to underperform in February. A slowing Chinese GDP could also be reflected in stocks that rely on the Chinese consumer. Stocks that could follow in the footsteps of Treasury Wines include A2 Milk Company Ltd (ASX: A2M) and Synlait Milk Ltd (ASX: SM1).

Foolish takeaway

In my opinion, investors that hold stocks going into reporting season should expect extreme volatility. In addition, investors that buy stocks in anticipation of getting a boost in reporting season would be better suited to punting on the pokies. A prudent strategy would be to watch how reporting season plays out and then let price action determine an investment decision.