Investor appetite for Next (LSE: NXT) headed through the floor again last week following the firm’s latest terror-filled trading update. The stock headed to levels not seen since January 2013, and I believe further weakness is likely to transpire as we head through 2017.
The retailer expects conditions to become a lot tougher from this year. Next advised that “the fact that sales continued to decline in quarter four, beyond the anniversary of the start of the slowdown in November 2015, means that we expect the cyclical slowdown in spending on clothing and footwear to continue into next year.”
The business is likely to struggle shifting its clobber as competition increases on the high street and in cyberspace. And Next may be forced to reduce the price tags on its full-price items to stop sales falling off a cliff.
With sterling pressures also likely to raise costs in the months ahead, Next is expected to record earnings dips of 2% and 5% in the periods to January 2017 and 2018 respectively. But I reckon these forecasts are in severe danger of painful downgrades, making cheap P/E ratios of 9.3 times and 9.8 times somewhat redundant.
Bank in bother
I also believe share pickers should steer clear of Standard Chartered (LSE: STAN) as macroeconomic turbulence in emerging regions looks set to persist.
The banking giant emerged as one of the FTSE 100’s stronger performers during the latter half of 2016 as a safe haven for those fearing the implications of Brexit closer to home. But the ongoing troubles in StanChart’s Asian marketplaces look set to continue as more Federal Rate hikes appear on the horizon, a situation that should see the dollar gain further ground.
The bank is already struggling to get to grips with tough competition and broader economic troubles in these regions, and revenues dipped 6% during July and September. And Standard Chartered continues to desperately restructure in response to these troubles, and announced plans to spin off its retail operations in Thailand at the end of December.
With concerns also persisting over the health of its balance sheet, not to mention the prospect of even more heavy regulatory fines, I reckon Standard Chartered is a risk too far at present, particularly given its elevated P/E ratio of 18 times for 2017.
The prospect of severe economic weakness in the UK as difficult Brexit negotiations continue could also make Lloyds (LSE: LLOY) a blood-curdling stock pick in 2017.
While economic indicators since June’s EU referendum have been much better than expected, a steady rise of inflation and a weakening labour market provide reasons to be concerned for the months ahead. And the Bank of England looks likely to keep interest rates locked at record lows to keep the economy afloat during this uncertain period.
The City expects earnings at Lloyds to dip 6% both this year and next against this backcloth. And with the bank also having to fight against rocketing PPI bills — a problem that could persist to the end of the decade — I reckon the firm remains a risk too far, even on a low P/E ratio of 10 times and 10.6 times for 2017 and 2018.
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Royston Wild 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.