3 nightmare stocks I’d run a mile from

Paul Summers picks out three market laggards he’s avoiding at all costs.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Concerns over slowing global growth, the ongoing US/China trade war and the possibility of a no-deal Brexit make it more important than ever for investors to check that their portfolios contain stocks of sufficient quality to weather market storms. With this in mind, here are three laggards that I have no intention of ever buying.

Stock market dogs

Aston Martin (LSE: AML) makes undeniably beautiful cars. As an investment, however, it’s been an absolute dog.

The shares have now fallen 75% in value since arriving on the market, making it one of the worst-performing stocks in the FTSE 350 in 2019. Indeed, I can’t help thinking that it will be regarded as a perfect example of why it’s usually best to avoid buying stock in newly-listed companies until they’ve been able to prove themselves. 

Having fallen so far, does Aston Martin now offer a great opportunity for contrarian investors? Perhaps. A valuation of just over £1bn makes more sense than the price-tag originally slapped on the business.

That said, I wouldn’t rule out a funding drive at some point given the company’s precarious finances, which could hurt the shares even more. Unsurprisingly, there are no dividends to speak of — something I tend to look for as compensation for being asked to wait for a recovery. 

Thanks to its uncanny ability to make the headlines for all the wrong reasons, retailer Sports Direct (LSE: SPD) is another stock I’m steering well clear of, especially after the PR disaster surrounding July’s full-year results.

There’s been a lot of discussion as to whether Mike Ashley’s strategy of buying up struggling high street firms is inspired, reckless or just plain odd. Given that Debenhams was a non-starter and House of Fraser is already regarded as being in “terminal decline“, I think we can safely dismiss the first option. Like a compulsive shopper, however, he’s content to ignore investors’ concerns and just keep spending.

Having declined over a third in value in 12 months, the mid-cap’s shares now trade on a little less than 13 times earnings. Considering there’s no dividend, returns on capital are falling, net debt is rising and the company has been unable to appoint an auditor. It’s too expensive as far as I’m concerned. Personally, I think Ashley would be doing the market a favour by taking the company back into private hands.

My final pick of stocks I’ll be avoiding is FTSE 100 constituent and grocer Sainsbury (LSE: SBRY).

Although the sector should remain fairly resilient during tough economic times (people always need to eat), I’d say the grocer is the worst pick of a hyper-competitive bunch, even more so since its proposed merger with Asda was blocked by the CMA. With Tesco having stabilised, Aldi and Lidl continuing to steal customers and Morrisons building stronger ties with Amazon, the UK’s second-biggest food retailer by market share looks rather lost in comparison. 

Its shares now trade at their lowest level in decades. A forward price-to-earnings (P/E) ratio of 10 and dividend yield of 5.3% might look enticing (my Foolish colleague Karl Loomes certainly thinks so), but I’m struggling to identify a catalyst for the company to bounce back to form. If it posts more bad news in November’s interim results, I suspect the probability of Sainsbury being chucked out of the top tier will be very high. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How many National Grid shares must I buy for a £100 monthly second income?

I think National Grid could be one of the safest options for investors seeking a dividend income. And today its…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

NIO stock is down 90%. Will it recover?

NIO stock has fallen significantly from its 2021 all-time high. But could now be a chance for this Fool to…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

These 2 UK shares could help me reach £1,000,000 in my Stocks and Shares ISA

A FTSE 100 compounding machine and a FTSE 250 value stock are the UK shares Stephen Wright thinks could help…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

If I’d invested £1,000 in Lloyds shares at the start of the year, here’s what I’d have now

The stock market is unmoved, but Stephen Wright thinks last year’s record profits might give Lloyds shares a long-term boost.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

I’ll snap up shares in this growth stock in March if others don’t get there first

This Fool says shares in this growth stock are stable, full of profit, and might be undervalued. But there are…

Read more »

Rainbow foil balloon of the number two on pink background
Investing Articles

My 2 top energy investment trust picks for a passive income

I'm aiming to buy more of these investment trusts for a passive income and the reasonably stable energy sector returns…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

5.5% dividend yield! Shares like these could be great for my retirement

Oliver Rodzianko thinks this company with a stellar dividend yield could be very useful when looking for income from his…

Read more »

Investing Articles

Should I buy this FTSE 250 stock as it soars back to the FTSE 100?

This FTSE 250 stock has rallied following its pandemic woes. This Fool thinks now could be a good time to…

Read more »