It has been a week of sharp contrasts on the ASX. Materials stocks surged to the top of the leaderboard, capping a blistering six-month rotation into mining, while technology shares suffered a horror session that left the sector down more than 11% in a single week. The divergence between the two has become the defining story of the Australian equity market and the gap continues to widen.

Company News

• ResMed reported strong second quarter revenue and earnings growth, modestly beating analyst expectations as demand for its masks and devices remained strong. The company is net cash and continues to deliver strong cashflows supporting reinvestment, share buybacks and dividends. Gross margins continue to expand, and the company is working to increase public awareness about sleep health to grow its addressable market. Rising costs and concerns over the potential re-entry of competitor Philips into the market detracted from an otherwise strong result.

• Packaging group Amcor delivered a solid quarterly result, delivering a small beat to analyst earnings forecasts. The company reaffirmed its full-year earnings guidance despite volumes being ~1.5% softer than expected when the forecast was initially made. The group is executing well to extract very significant synergies from its merger with Berry Global. Amcor expects ~US$650m in total synergies and US$260m in this first year.

• RBA data for December showed ongoing market share gains for Macquarie Group in the highly competitive Australian mortgage market. The silver donut now accounts for ~7% of the nation’s home loans. Overall system credit growth remains robust at ~7.7% year-on-year.

• Yum! Brands, the global franchisor of restaurants including KFC, Pizza Hut, and Taco Bell, reported good sales and earnings growth in its fourth quarter results. Global KFC sales grew 6% and operating profits grew 10 %. Yum! Reported 4% sales growth in its Australian KFC business, slightly behind market expectations for Australian-listed KFC operator Collins Foods.

Stock Spot

• Cleanaway Waste is a $6 billion market cap waste group servicing local councils, businesses and industry. The group operates a large, complex network of collection vehicles, transfer stations, treatment sites and landfills that provide scale and barriers to competition.

The company has struggled recently with safety incidents and ongoing capital investment needs on fleet, systems, and other heavy assets, while a potential slowdown in the economy from higher interest rates or reduced infrastructure and construction works are a risk for volumes. However, Cleanaway has an enviable market position and network. Key assets such as landfills are often in strategic locations that cannot be replicated, and waste volumes are broadly correlated to growth in GDP, which is supportive of long-term growth in revenue. Given the operating leverage inherent in a high-fixed cost business, modest top-line growth can deliver very attractive earnings growth.

The coming weeks of the reporting season will be pivotal. Expect volatile reactions to earnings beats and misses and watch for signs that the domestic economy is holding up despite higher rates. For investors willing to look past the noise and be selective, there are babies in this bathwater.