The Motley Fool

Why I’m still avoiding shares of these three companies despite today’s good results

Housebuilder Taylor Wimpey (LSE: TW) partially dampened investor’s post-Brexit fears this morning as half-year results saw a 12% rise in pre-tax profits alongside reassuring words from management that trading hadn’t been affected by the referendum result. Of course, with results only covering the week following the vote the issue remains what will happen in the next year or two during what most companies and economists are predicting will be a period of lower consumer confidence and economic instability.

While Taylor Wimpey is one of the healthiest housebuilders around, with strong margins and low debt, the highly cyclical nature of the industry scares me. With analysts expecting earnings growth to slow for the second consecutive year and a post-Brexit hangover likely to be on the way, I don’t believe this is the best time to begin a position in Taylor Wimpey.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Challenges for the challenger

Challenger bank Shawbrook (LSE: SHAW) also posted solid half-year results with a 14% year-on-year rise in pre-tax profits and an increase in return on tangible equity to 21.2% on an annualised basis. Despite these positive results the market is always forward-looking and judging by the mere 1.3% rise in share prices this morning, a good six months doesn’t compensate for the bank’s high exposure to any Brexit-related slowdown.

That’s because Shawbrook focuses entirely on lending to small and medium sized enterprises, the largely domestic-oriented firms that are most at risk from several years of economic turbulence. On top of this macro challenge is the £9m impairment charge the bank took late last month due to irregularities in its lending practices at one division. These are exactly the type of internal problems that challenger banks were supposed to improve on compared to larger rivals. Internal risk management issues, a slew of new C-suite executives and exposure to any economic slowdown are reason enough for me to avoid Shawbrook shares right now.

Debt load

The latest trading update from pub chain Marston’s (LSE: MARS) revealed like-for-like sales rose at least 2% across all divisions over the past 42 weeks. This improvement came despite Euro 2016, which was supposed to lead to sales decreasing at the food-centric pubs Marston’s is known for.

However, this good news can’t make up for the elephant in the room, which is net debt of £1.2bn that was five times EBITDA at half-year results. While property-focused companies such as pub chains can afford to have relatively higher levels of debt, this is still enough to worry me.

The main reason is that there’s little prospect for runaway growth in the pub sector. Footfall is decreasing across the industry, which is why Marston’s has focused so heavily on food service. Without incredible growth ahead of it, dividend growth and expansion is likely to slow in the future as interest payments require greater attention. While income investors may find Marston’s 5% yield and relatively stable business attractive, I’ll be looking elsewhere due to spotty growth prospects and high debt.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.