Corbin Perception, an investor research and investor relations (IR) advisory firm, released today its quarterly research report Inside The Buy-side®, which captures trends in institutional investor sentiment heading into the earnings season.

Following a year in which the S&P 500 posted its best performance since 1997, investor sentiment is dominated by "cautious optimism", which is how 75% of those surveyed describe their outlook. As earnings season gears up, participants largely expect results to be in line with or better than consensus numbers and see good reasons for stocks to perform well in 2014.

In response to the Federal Reserve's long-awaited announcement to begin tapering its QE purchases, those surveyed largely view it as an indicator of the strengthening economy as opposed to a concern. However, as Norman Fine, Portfolio Manager at Steinberg Global Asset Management notes, "While valuations are a bit stretched and have been discounting economic improvements, consensus earnings remain too high and will be revised down as the year progresses. As well, after a robust market return in 2013, history suggests we can expect positive returns in 2014 but to a much smaller degree."

Continuing, management tone is reported as turning more positive since last quarter. The number of respondents indicating management tone is "less negative" has increased by roughly 50% while those who maintain that management is "more negative" declined 75% from last quarter.

Participants also expect the companies they cover to remain acutely focused on cost cutting, which one describes as a "way of life" for companies and essential to growing EPS in the current business environment.

"Management's positive tone along with cautiously optimistic sentiment from investors suggests that we will see improving corporate fundamentals in 2014," commented Rebecca Corbin, Founder and President of Corbin Perception, adding, "Investor expectations for earnings growth and FCF generation certainly reflect that."

Meanwhile, Corbin Perception's channel checks on best uses of excess free cash reaffirm, for the second quarter in a row, investors' preference for reinvestment. Dividends remain the favored method for returning cash to shareholders, while buybacks continue to fade in popularity as equity valuations rise.

Since 2008, Corbin Perception has tracked investor sentiment on a quarterly basis. Inside The Buy-side® and other research on real-time investor sentiment, IR best practices and case studies are available at CorbinPerception.com.

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Excerpts from Inside The Buy-side®

Corbin Perception interviewed 52 global institutional investors across diverse industries and investment styles in an effort to capture current sentiment; selected findings include:

  • As earnings season gets underway, 86% of those surveyed expect 4Q13 results to be in line with or above consensus expectations
  • In almost equal numbers, the majority forecasts organic growth, EPS growth and FCF to improve this quarter; 75% expect continued cost cutting from the companies they follow
  • 46% describe executive's tone as less negative quarter-over-quarter
  • 75% characterize their current market sentiment as "cautiously optimistic"; no one reports they are categorically bearish
  • Investment professionals report favoring the IT, Industrials and Consumer Discretionary sectors and express bearish sentiment toward Utilities and Consumer Staples
  • Similar to last quarter, reinvestment led investors' preference for use of excess free cash, followed by dividends and smart M&A
  • Economic growth followed by a lack of viable investment alternatives are the primary drivers of the equity rally, say those surveyed; 65% report the Fed's commencement of tapering gives them confidence in an improving economy as opposed to concern with 79% asserting current market valuations are sustainable
  • Regarding emerging markets, Latin America generates more concern than China given it is becoming "difficult politically" especially with respect to most Atlantic-facing countries

About Corbin Perception

Corbin Perception is an investor research and IR advisory firm assisting public companies with driving long-term shareholder value. Core advisory services include Investor Perception Studies, Investor Targeting, Investor Presentations, Investor Days and Strategy Communication.

To access the full report, visit our website: www.corbinperception.com/research-library

Corbin Perception
Bronwyn Swanson, 203-283-7997
bronwyn.swanson@corbinperception.com