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As today’s major profit results highlight, this is a stock pickers market.  While the ASX 200 index is up a creditable 4.4% so far this year, this masks considerable variance in the performance of individual stocks and sectors.

After this morning’s profit result, JB Hi-Fi is up 51% so far this year. Fellow retailer, Woolworths on the other hand is down 4%. Amongst other things this reflects the differing competitive profiles of the supermarket and electronic goods sectors. JB Hi Fi and Harvey Norman are benefitting from reduced competition following the demise of Dick Smith. Woolworths and the other supermarkets on the other hand, are feeling the weight of increased competition from Aldi and Costco.

JB Hi-Fi’ strong performance this morning reflects the fact that they have achieved solid sales growth without sacrificing margin. In fact gross margin was up 3 basis points. It is also very encouraging to see that the New Year has started well with comparable sales growth up 9.5% for the month of July. While sales growth is unlikely to maintain this momentum this is a positive start. It justifies early optimism for another solid result in the current half

The ASX 200 index’s steady start to the week looks appropriate as investors wait on the profit reporting season to unfold.  The market is being supported by low interest rates and has not been given any reason to take defensive action in recent weeks. However, the outlook remains subdued for many industries. Investors appear reluctant to take valuation to new levels in advance of upcoming results and outlook statements.  

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