3 shares I’m avoiding like the plague in today’s stock market

Our writer picks a trio of shares from the London stock market he has no plans to buy right now, due to their business models, share prices — or both!

| 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.

Bus waiting in front of the London Stock Exchange on a sunny day.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Like a lot of life, the stock market contains the good, the bad, and the ugly. While I spend time looking for great shares to buy for my portfolio, I also come across some that I do not want to own.

That could be because I do not like the business prospects, the share price – or both. After all, at the wrong price, even a great business can make a terrible investment.

With that in mind, here are three shares I would not touch with a bargepole at the moment.

Should you invest £1,000 in Ssga Spdr Etfs Europe I Public Limited Company - Spdr Ftse Uk All Share Ucits Etf right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Ssga Spdr Etfs Europe I Public Limited Company - Spdr Ftse Uk All Share Ucits Etf made the list?

See the 6 stocks

Ocado

Let’s start with a case of where I do not like the business or the price: Ocado (LSE: OCDO).

Ocado Is two businesses in one. The first is an online grocery retail operation in the UK. That can make money, as it has proven. But retail is a brutally competitive low-margin industry. Ocado faces competition from a host of businesses, such as Tesco and Amazon, meaning profit margins will likely never be spectacular.

Created with Highcharts 11.4.3Ocado Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The second business is selling digital commerce technology and fulfilment solutions to other retailers, such as Morrisons here and Kroger across the pond.

That could be a good business. Ocado has an impressive customer base and proprietary technology. But the business model is capital-intensive and Ocado has yet to prove that it can be profitable on a sustained basis.

Despite that, Ocado – which this week reported a loss before tax of £154m for the first half – has a market capitalisation close to £3bn. I regard the total business as still unproven when it comes to profitability – and reckon the valuation is too high.

National Grid

Another firm with heavy (in fact, much heavier) capital expenditure requirements is National Grid (LSE: NG).

Unlike Ocado, it has proved it can be consistently profitable, reporting £2.3bn in earnings last year. That helps fund a dividend that has grown regularly and the shares now offer a dividend yield north of 6%. For many income-focused private investors, that makes National Grid a stock market darling.

Created with Highcharts 11.4.3National Grid Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The problem, as I see it, is the vast expense involved in maintaining (let alone reshaping) a national energy distribution network. That led the FTSE 100 business to dilute existing shareholders this year to raise cash.

Yet its net debt remains stubbornly high. With that balance sheet, ongoing capex demands and regulatory caps on pricing, I do not like the business model, even though National Grid is a monopoly in some areas.

Spirax

Now for Spirax (LSE: SPX), a company whose business model I think is superb — but whose stock market valuation knocks it out of contention for my ISA right now.

The company is also in the FTSE 100, reflecting years of growth. Its focus on safety-related items means clients are willing to spend for quality, even when budgets are under pressure.

Created with Highcharts 11.4.3Spirax Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

It has built a strongly profitable business in part through a long string of acquisitions. That has enabled it to increase its dividend per share annually for decades, although I do see a risk of potentially overpaying for future acquisitions hurting profitability.

The shares have fallen 18% in a year and now stand just 0.3% higher than they did five years ago. Yet, at a price-to-earnings ratio of 35, I still see them as overvalued.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon and Tesco Plc. 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

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »