This time of year is full of predictions about what may be the next hot sectors and what may change in the year ahead, but usually it's best to forget about trying to guess what might change, to focus on what won't change.
It's much easier this way and is likely to guide you into owning the best companies that keep on winning due to their competitive advantages, while avoiding those companies that are struggling due to structural or competition issues.
Other companies to struggle may have recently come out of an initial public offering with insiders having sold out in what should be a red flag for investors.
Elsewhere, the miners enjoyed rebounding commodity prices in 2016, however, those prices may take a breather or reverse direction later in the year to take share prices back down with them.
Below, I have 10 businesses I think investors may do well to avoid in 2017 due to some of the above issues.
Nine Entertainment Co Holdings Ltd (ASX: NEC) is the free-to-air broadcaster that is finding its advertising revenues coming under pressure as the rise of the internet and online streaming sees the public turn away from old-fashioned television. At $1.08 this stock looks an old-fashioned value trap.
Idp Education Ltd (ASX: IEL) is a recently listed education business that relies on English language (IELTS) testing for most of its revenues. The company is on a demanding valuation with a revenue-generating model that is vulnerable in my opinion so don't be surprised if it reports toughening conditions later in the year.
OFX Group Ltd (ASX: OFX) is a money transfer business that came out of IPO with a business model that it is also vulnerable to numerous risks in my opinion. The staff turnover has also been relatively high with the firm's results disappointing investors in 2016. Don't be surprised if you see more of the same in 2017.
Slater & Gordon Limited (ASX: SGH) is the law firm that is weighed down by a mountain of debt after its disastrous acquisition of Quindell's UK business. It it cannot deliver positive cash flows in 2017 it would seem a creditor-driven restructure detrimental to current shareholders is more than likely in 2017.
Ten Network Holdings Limited (ASX: TEN) is facing similar problems to the Nine Network, while also being weighed down by debt at the same time as making a loss. The shares have lost 37% over the last three months and look likely to come under more pressure.
Fortescue Metals Group Limited (ASX: FMG) is a well run company that has seen its share price quadruple over the past year thanks to the rising iron ore price. The stock sells for $6.13 and I would be surprised if it finishes the year at a higher level, unless we see a shock return to a China driven mining super-cycle.
Metcash Limited (ASX: MTS) as the wholesales supplier to the IGA supermarkets faces competitive headwinds as the major supermarkets are voluntarily reducing their margins, while the likes of Aldi and Costco continue to expand. Unfortunately, Metcash looks stuck between a rock and a hard place, despite its turnaround efforts.
Domino's Pizza Enterprises Ltd (ASX: DMP) makes the list on valuation grounds as its dominant pizza delivery business in Australia may see slowing same-store sales in 2017 thanks to the rise of online competition. Elsewhere, the business in Japan is hardly firing on all cylinders.
Estia Health Ltd (ASX: EHE) is the aged-care-home provider with a significant debt burden that was forced to raise $137 million in capital at the end of 2016. It also faces regulatory pressure and it's been all downhill for this business since it hit the ASX boards two years ago, with little to suggest next year will see a change in fortune.
Western Areas Ltd (ASX: WSA) is the WA-based nickel miner that enjoyed a strong run on the back of the Trump commodity-price reflation trade at the end of 2016. However, news that Indonesia may start exporting nickel again is likely to put nickel prices and Western Areas under pressure in 2017.
