I’m a big believer in UK shares, but not every stock is created equal. And according to Warren Buffett, the first – and most important – rule of investing is to avoid losing money.
In order to win, first you have to not lose. So here are a couple of UK stocks that I’m looking to stay well away from to try and protect my finances.
Aston Martin
Even the most optimistic Aston Martin Lagonda (LSE:AML) shareholder must accept there’s an above-average chance of losing money. The company has gone bankrupt seven times.
The firm has a truly iconic brand, which is a huge asset. But for some reason, the business doesn’t seem to be able to make any money – and this gets to the core of what investing is about.
The company has been raising cash by issuing shares and taking on debt. And then it’s burned through that cash in an industry with high capital requirements.
What Aston Martin really needs is a strong economic recovery in China — one of its most important markets. And there are reasons for optimism on this front.
yet even for investors who hold a bullish view on China, though, I think there may be better opportunities available. In Aston Martin’s case, I find it hard to see what justifies an enterprise value of almost £2bn.
The company expected to be free cash flow positive in 2024, but this has yet to materialise. And given the firm’s record of going bust, it looks way too risky for me.
Wizz Air
I read earlier this month that Wizz Air Holdings (LSE:WIZZ) was one of the most heavily-shorted UK shares. It takes a braver investor than me to bet against it, but I don’t like the stock.
The company has recently undergone a(nother) big strategic shift. Where it was previously looking to offer low-cost fares to the Middle East, it’s now gone back to focusing on Europe.
There are reasons to like the change. Operating a low-cost service on long-haul flights was always going to be hard because it’s impossible to generate time for extra flights using fast turnarounds.
The trouble is, shifting back to Europe puts it in direct competition with the likes of easyJet and Ryanair. And I think it’s going to be hard for Wizz to set itself apart from these carriers.
What Wizz really needs is consolidation across the industry. This would result in lower competition and better margins for the remaining participants.
Ryanair CEO Michael O’Leary thinks this is likely and that it will involve Wizz being acquired. That should be a big worry for short sellers, but it’s not a reason for me to even think about buying the stock.
Avoiding losses
A lot of the time, I don’t buy shares because the likely return just isn’t high enough. I’m convinced the company is going to grow, but not enough to justify the current share price.
With both Aston Martin and Wizz, the situation is much worse than this. As I see it, there’s a genuine chance of investors actively losing money.
As a result, I’m staying well away from both. In a UK market that I think is full of opportunities, investors should tread very carefully around these stocks.
