The AIM market is usually considered to be one of the riskiest places for investors to deploy their cash, but investment risks are not just limited to this growth market.
Even in the FTSE 250 there are plenty of stocks that could end up costing you money. Here are two such businesses I’m avoiding at all costs.
Boardroom battles
Boardroom bust-ups rarely end well for investors because management infighting usually leaves the company floating without direction.
It’s for this reason I’m avoiding the ower of Southend airport, Stobart Group (LSE: STOB).
Today Stobart has announced the sacking of former CEO Andrew Tinkler and accused him of “subverting the company in his own interests” while demonstrating a “flagrant disregard for fiduciary duties“. Tinkler, who retired as CEO last year but went on to serve on the board, has been trying to oust chairman Iain Ferguson and replace him with billionaire Philip Day. Neil Woodford, who owns nearly a fifth Stobart, had thrown his support behind Tinkler. Together, Woodford and Tinkler own 27% of Stobart.
Stobart is accusing Tinkler of abusing his power, running up excessive expenses and trying to enrich himself at the expense of the company. Meanwhile, Tinkler is now accusing his former employer of “attempts to defame him.”
Both sides have hired lawyers to take the fight to the next stage. Stobart has filed a £4m lawsuit against Tinkler over historical-related party transactions, while Tinkler has issued proceedings claiming defamation.
As these two sides fight it out, it’s clear there’s only going to be one real winner, and that’s the law firms representing each party. In my view, until the battle is over and dust has settled at Stobart, it might be best for investors to avoid the company.
Revenue diversification
Another stock I’m avoiding today is speciality pharmaceutical group BTG (LSE: BTG).
Shares in BTG have been marked down today after the company announced that the US Food & Drug Administration panel has voted against the approval of its Elevair Endobronchial Coil System for the treatment of people with severe emphysema. This is a set back for BTG as City analysts were expecting Elevair to be a significant contributor to growth in the years ahead.
According to BTG, the FDA panel voted in favour of recognising the safety of Elevair, but against its effectiveness. The benefits of using the product do not outweigh the risks, the panel concluded.
While the company is planning to work with the FDA to find a solution to its concerns, this isn’t the only headwind BTG faces. Analysts have also warned that the risks around BTG’s CroFab snake antivenom have been “underestimated” by investors as new competition hits the market next year. CroFab is BTG’s second-best selling product, and management is relying on new products to more than double annual revenues to $1.5bn within five years.
Unfortunately, the Elevair setback is a step in the wrong direction for the group. And with risks to growth escalating, I believe it’s best to avoid the shares at this time.
