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.