Morgans' August reporting playbook (plus 8 stocks to watch)

Australian companies are traversing a tougher phase as sticky inflation takes longer to unwind. Because Australia lifted rates earlier than its developed-world peers, it has contributed to recent below-average corporate earnings and returns.

However, conditions vary markedly across states and thematics, creating a highly bifurcated market. Sticky inflation, higher living costs, and recent tax changes act as dampeners for housing, banks, and broader consumer sectors. '

Commodity exports and strong pricing support resilience in Queensland (QLD) and Western Australia (WA). Surging capital expenditure into data centres, public infrastructure, and energy offers support in the eastern states, though Victoria (VIC) remains the clear laggard.

The ASX200 returned 6.1% in FY26, landing well below its long-term average of +10%. Performance was starkly divided:

• Resources (+45%): Dominated market gains - particularly mega-cap miners, gold, and lithium, marking their best returns since 2006.
• Industrials (-4%): Significantly lagged behind their long-term average of +10%.

The critical question for August is whether the domestic economy can maintain aggregate resilience while the Reserve Bank of Australia (RBA) attempts a soft landing to bring inflation back into range.

If successful, this will encourage investors to "look through" the current earnings lull toward lower rates and higher future earnings.

Looking through the lull supports out-of-favour industrials across Consumer, Housing, Growth (IT/Software/Online), and Small-caps. The market forecasts a return to meaningful Earnings Per Share (EPS) growth in FY27.

Following an EPS decline in FY25 and below-trend growth in FY26 (ex-resources), there remains a risk of further erosion in earnings expectations through August.

Investors are better protected this season by a retreat in the market multiple to sub-17 times, suggesting result expectations are far more modest than in past seasons.

A tight equity market premium

While valuations have retreated, compensation for equity risk remains tight.

Investors are now receiving a 1.2 percentage point premium for holding equities over a 10-year Commonwealth bond. This implies that compensation for taking on equity risk is limited when compared to fixed income at a market aggregate level.

To navigate this tight environment, investors should focus on companies with clear pricing power and visible cash-flow growth. Steer clear of low-growth, large-cap “bond proxies” whose valuations rely entirely on ever-lower discount rates.

Our top stock selections driving this selective strategy include:

• ALS Limited (ASX: ALQ)
• Amcor (ASX: AMC)
• Aristocrat Leisure (ASX: ALL)
• GemLife Communities Group (ASX: GLF)
• ResMed (ASX: RMD)
• Sigma Healthcare (ASX: SIG)

Factors to watch

• Dividend Yield: Recent budget changes have shifted investor preferences toward income over capital gain stocks, in particular Real Estate. Investors favour low-growth, defensive stocks that grow at or just above CPI, while still benefiting from franking credits.

• Quality: The rotation toward high ROE/ROIC (Return on Equity / Return on Invested Capital) names reflects a distinct preference for resilient fundamentals, stable earnings, and strong dividend payout ratios.

• Size: Markets are actively rotating from small-caps to large-caps, heavily favouring established companies with dominant market positions and pricing power, which offer far greater stability amidst economic uncertainty.

• Momentum: Share price trends seen earlier this year have reversed: Healthcare stocks have seen positive share price growth in the last 3 months, as investors seek oversold stocks given how far valuations have fallen. Energy stocks have fallen as oil prices revert to pre-war levels - for example, Santos (ASX: STO) and Woodside Energy (ASX: WDS). Some bank names like Westpac (ASX: WBC) and National Australia Bank (ASX: NAB) have come under pressure as asset quality is called into question due to rising interest rates.

• Low Volatility: Heightened political and economic uncertainty has increased demand for low-volatility sectors such as real estate and consumer staples, drawing capital away from the more cyclical, technology, discretionary, and materials sectors.

Meaningful earnings per share growth after a period of no growth

The lift in index-level EPS expectations since Spring 2025 has played an important role in sustaining current market pricing as earnings have grown into what was a stretched index valuation. Meaningful EPS growth is forecast into 2027 after a period of no growth. 

It’s also conspicuous that expectations have held reasonably firm throughout 2026, despite higher interest rates, fuel prices and broader inflation. 

However, looking beneath the aggregate level data at sector and stock trends reveals a far more disparate story, where Commodity exporters dominate the contribution to recent revisions.

Negative expectations building to August

Short sellers have steadily raised their positions throughout the year. Despite the ASX near its 13 February high, short interest totals $62bn across the ASX 200 and is c.34% higher than February. 

As the macro clouds the outlook, short sellers are targeting stock-specific risks in a few key names including growth/high PE names (4DX, BRG, CAR, COH, DMP, DRO, SLX, TLX, and WTC), select resources (LYC, PDN), and cyclicals (EDV, ELD, and FLT).

6 stocks with upside potential

Below is a selection of stocks we will be watching closely.

Amcor (ASX: AMC): Despite a better-than-feared 3Q26 performance, EPS (Earnings Per Share) consensus expectations remain anchored at the bottom end of guidance.

Eagers Automotive (ASX: APE): We see upside risk to consensus following a strong finish to the financial year, with June industry deliveries showing a +7% increase over the previous corresponding period (pcp).

GemLife Communities Group (ASX: GLF): Upside risk is well-supported by stronger ASPs (Average Selling Prices), resilient profit margins, and expected 200+ home settlements.

Guzman y Gomez (ASX: GYG): Features a positive first 7-week trading update alongside transaction growth outpacing comparable sales. In conjunction with operating leverage, this strong start could drive a significant market rerating.

NRW Holdings (ASX: NWH): FY27 consensus currently appears conservative. The addition of new contracts and Fimiston downside protection are expected to drive earnings well above market expectations.

PWR Holdings (ASX: PWH): Management guidance could prove conservative as the business increasingly realises tangible benefits from its dedicated Australian manufacturing facility.

And 2 with downside risks

Domino’s Pizza Enterprises (ASX: DMP): SSS (Same-Store Sales) deterioration exceeds the offsets provided by cost savings. Persistent headwinds facing individual franchisees continue to weaken the overall turnaround timeline and strictly limit immediate upside.

Nick Scali (ASX: NCK): Subdued consumer trading conditions are expected to weigh heavily on the near-term outlook. The upcoming July trading update serves as a key catalyst, and Morgans sees notable downside risk flowing into FY27 projections.