US earnings season

The biggest surprise in US earnings

By Glenn Freeman (Livewire Markets) & Andrew Macken

(As published on Livewire:


With around 80% of companies in the S&P 500 having now reported Q1 earnings, many Wall Street watchers have been surprised at the underlying resilience despite stickier inflation and “higher for longer” interest rate rhetoric.

The benchmark index is on track to hit 5% growth in earnings per share for the first quarter, according to FactSet data – the highest since the second quarter 2022 and above the 3.2% growth analysts expected.

But the biggest surprise for Montaka Global Investments’  has been the inconsistent and often muted stock price movements in response to some of the “fantastic” results.

Macken cites several company examples from the Montaka Global Long Only Fund portfolio. This includes a global software firm whose revenues continue to grow at 24% annually – driven in part by its early adoption of AI within its products – yet its share price fell in response.

In the following Q&A, the Montaka CIO names nine companies that displayed “underwhelming” share price reactions despite posting solid results. This includes Macken’s latest portfolio addition, a luxury goods retailer and long-time watchlist stock that finally dipped into “buy” territory in October.

What has suprised you most this US quarterly earnings season?

This earnings season has been really strong for the businesses we focus on – those that are advantaged and positioned well within large structural transformations.

Most surprising was the inconsistent and often muted stock price movements following some fantastic earnings disclosures.

It seems clear that short-term stock price movements are driven far more by narrative changes around US inflation and interest rates, than by fundamental earnings power trajectories.

Take global enterprise software leader, ServiceNow (), for example:

  • Revenues continue to grow at an annual rate of 24%, with its backlog (reflecting future revenues) growing by 27%.
  • Profit margins continue to expand, and
  • Early adoption of the company’s new (higher priced) Generative AI-enabled products is on a tear.

The Q1 performance only strengthened Montaka’s conviction for ServiceNow’s long-term opportunity in driving massive productivity gains inside enterprise customer budgets. But despite all financial metrics beating Wall Street expectations, the stock price declined.

Similarly, the results for the likes of Blackstone (), Amazon (), S&P Global, Microsoft (), LVMH, Meta (), KKR (), and Visa () were all terrific and further underscored to us the extent of the long-term opportunity for these businesses. Yet, short-term stock price reactions following the results have been relatively underwhelming.

We believe this dynamic is a great reminder to investors to look through the short-term gyrations of the stock market and remain focused on the long-term trajectory of company earnings. Over time, it is the latter that will matter.

Have you made any portfolio changes on the back of recent results?

We haven’t made any portfolio changes so far this earnings season. While we continually evaluate new potential investment opportunities, these are always assessed both (i) on an absolute basis, and (ii) on a relative basis to what we already own.

Frankly, the bar is very high today for new candidates to be included in the portfolio because we believe there remains so much upside in Montaka’s existing investee companies.

How are you currently positioned in terms of cash versus stock holdings?

We are fully invested, at present. We see a substantial upside in Montaka’s current portfolio. We cannot justify holding cash relative to the great opportunities we are seeing in the equities of Montaka’s investee companies.

How do you think the US market is priced currently? How much upside do you see from here?

It depends on the specific stock in question. Many stocks are overvalued, in our view. And we think some are really undervalued — of course, these are the ones we own. There are others, too, which we think are undervalued, just not to the same extent as some that we own today.

This conceptualisation of the market – as a collection of individual businesses, rather than a singular behemoth – helps explain why Montaka chooses to run a very concentrated portfolio of high-conviction opportunities.

Our 10 largest investments, for example, account for 73% of the portfolio today. Of course, this means that Montaka’s performance will deviate from market averages from time to time, but we think this also gives us the best chance of superior compounding over the long term.

How do you narrow down a large universe of stocks to a concentrated portfolio of 15-30 names?

The are several aspects to this.

1. By seeking to own only the world’s most advantaged businesses, this rules out most of the market for ownership by Montaka (though we do spend time studying less advantaged, and even disadvantaged, businesses for learnings and case studies).

2. We actively and continually nurture an internal “Bench” of potential investment opportunities. These are often advantaged businesses for which we assess that now is not the right time for ownership – usually because we assess the valuation upside is relatively inferior to our existing opportunities.

3. We employ an internally developed screening tool across thousands of stocks to uncover possible evidence of business quality. This minimises the risk of blind spots, or biases, and helps guide our investigations into new businesses.

4. Finally, we benefit from the cumulative decades of active business research and analysis undertaken by Montaka’s investment professionals. And we are always learning, evolving, and improving.

What is your most recent portfolio addition and what’s your thesis for the company?

Our most recent addition to Montaka’s portfolio was luxury powerhouse, LVMH, in October last year. This business had been living on Montaka’s ‘Bench’ for several years and we believe we finally found the right opportunity to buy the stock.

LVMH – and particularly its historical brands like Vuitton, which have been carefully nurtured for more than a century – holds a very privileged position in the minds of ultra-high net worth (UHNW) customers.

While other luxury brands compete for the “aspirational” customer, whose discretionary purchases are now suffering due to inflation and economic uncertainty, the lion’s share of LVMH’s UHNW customers feel no such headwinds.

As sure as capitalism will continue increasing the wealth of the wealthy, LVMH’s highly-desirable brands will continue growing revenues – and largely via higher prices, not by flooding the market with more volume.

This price-led growth is an unusually attractive feature of this business. Not only do higher prices increase the desirability of the brands, they also result in very high profit margins of incremental growth.

Over time, this highly profitable growth will likely drag up the company’s average operating profit margin to levels far beyond what are currently expected by the market, in our assessment.

Unlike many western brands, LVMH’s position in the world’s second-largest economy, China, is both established and strong. This is enormously valuable given the disproportionate share of growth in luxury consumption that will be driven by the Asian consumer going forward.

Finally, we appreciate the very strong alignment between LVMH shareholders and the founding Arnault family. The family owns 49% of the company and continues to increase this holding over time. And many family members are dedicated to the day-to-day governance and management of the business as well.


Note: Montaka is invested in LVMH, ServiceNow, Blackstone, Amazon, S&P Global, Microsoft, Meta, KKR & Visa.

Podcast: Join the Montaka Global Investments team on Spotify as they chat about the market dynamics that shape their investing decisions in Spotlight Series Podcast. Follow along as we share real-time examples and investing tips that govern our stockpicks. Click below to listen. Alternatively, click on this link:


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Andrew Macken is Chief Investment Officer with Montaka Global Investments. 

To learn more about Montaka, please call +612 7202 0100 or leave us a line on


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