3 ASX companies you'd love to buy but shouldn't

Wesfarmers Ltd (ASX:WES) is 1 of 3 stocks that have jewels in their crowns, should you buy them for this reason alone?

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There are some great businesses on the ASX. Businesses like REA Group Limited (ASX: REA) and Ramsay Health Care Limited (ASX: RHC) are great overall and good when you look at each segment of the business.

However, there several other businesses that have a wonderful segment to their business, but other sections bring it down which dilutes the overall quality of the investment.

Should you buy a business for the jewel in its crown alone?

There are some examples where the great section of the business doesn't dominate the overall profile of the entity.

Think of Wesfarmers Ltd (ASX: WES) with its home renovation and construction business Bunnings. It has been one of the best retailer stocks in Australia over the last decade and easily swatted aside Masters, whilst still growing profit strongly.

However, in Wesfarmers' half year report to 31 December 2016 Bunnings only makes up 29% of earnings before interest and tax. Kmart, Coles, Target, Officeworks and the industrial businesses make up a much larger percentage of the business. Bunnings is a fantastic business, but some of Wesfarmers' other businesses aren't as strong.

Another example is Vicinity Centres Re Ltd (ASX: VCX) with its portfolio of shopping centres. It has a large number of moderately sized centres that have a good position in the local suburb and can slowly grow rental income.

The jewel in the crown is its 50% stake of Chadstone Shopping Centre, which is arguably the best shopping centre in the Southern Hemisphere. You could say that the other shopping centres dilute the quality of the overall portfolio simply because of how prestigious Chadstone is.

One more example is Fairfax Media Limited (ASX: FXJ) which owns various media outlets and Domain.com.au. REA Group has shown how popular the concept of a real estate website company is, which is why Fairfax is considering spinning off Domain to unlock shareholder value.

Foolish takeaway

Although Bunnings, Chadstone and Domain are great, I think investors can't ignore the fact that the investments carry poorer quality assets along with it. It is the overall quality of the business that you must consider. I don't think Wesfarmers, Vicinity or Fairfax are buys at the current prices.

If there's a chance to buy a crown jewel that's spun off separately, such as Domain, then that could be the time to try to own shares of the entity. If you're looking for a business that's made up of lots of great segments, you should check out our top dividend pick for 2017.

Motley Fool contributor Tristan Harrison owns shares of Ramsay Health Care Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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