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Three stocks to avoid… and one to buy

Many, perhaps most, of the world’s best investors, including Warren Buffett and Charlie Munger, attribute a great deal of their success to one key thing: not doing stupid stuff.

Avoiding ‘own goals’ is perhaps the best way for an investor to put the odds in their favour, especially if you’re not looking for ‘belt it out of the park’ winners.

So here’s three companies I’d avoid:

Qantas Airways Limited (ASX:QAN) is a great airline. I love hopping aboard one of the Flying Kangaroo’s planes. But I’m not buying their shares. Airlines have destroyed more fortunes than I care to count. Maybe this time it’s different. But they’ve been saying that since the 70s… 80s… 90s…

Rio Tinto Limited (ASX:RIO) made a lot — a LOT — of money during the iron ore boom. But the boom is gone. No-one knows where the iron ore price will be in 3 weeks, 3 months or 3 years. (No, you don’t.) So buying their shares — just because they’re there — seems silly to me. I’m not doing it.

Beach Energy Limited (ASX:BPT). As above. No seriously. You don’t know where the oil price is going. I don’t know where the oil price is going. There might be a time to add it to your portfolio. But that time isn’t now.

And the company I’d buy? Washington H. Soul Pattinson (ASX:SOL). The investment conglomerate might be boring… but we’ll take it, given the long-term outperformance.

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This company's dividend is almost the stuff of legends. Since it started paying dividends in 2007, it has increased its payout to shareholders every single year, a run that includes 21 consecutive dividend increases.

Based on the last 12-months of dividends, its shares are currently offering a fully-franked 4.8% yield, which grosses up to almost 7% when those franking credits are included. And in stark contrast to the likes of Commonwealth Bank and Telstra, this company just increased its dividend by over 13%, and guided for 2017 profits to grow by 20%!

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Motley Fool contributor Scott Phillips (TMFGilla) has no position in any stocks mentioned. The Motley Fool Australia owns shares of Washington H. Soul Pattinson and Company Limited. 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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