Long-term investors have the advantage over short-term punters because they can focus on just the essential characteristics of a good company. Things like good management, healthy balance sheets and industry prospects are essentials when searching for that long-term investment.
Sometimes, companies might get lucky and go by with just two of the essentials. But when a company fails to give investors two good reasons to invest, they’re toast!
Here are 10 companies I’m not going anywhere near at current prices.
At the beginning of this month I said that Billabong International (ASX: BBG) was not worthy of a place in your portfolio. At the time, its share price was a dismal $0.23 but just when buyers thought it couldn’t get any further from its historic highs of over $17.00 per share, it did. In under a month the share price has dropped 28%. Although I believe short term gyrations are expected with a stock of this calibre, I doubt any savvy investor can say with certainty that Billabong has a healthy upside.
Arrium (ASX: ARI) and Fortescue (ASX: FMG) are ‘pure play’ iron ore companies. Investors, and the general public, have begun to realise the impact of lower commodity prices through the numerous amounts of job cuts. Despite reassurances from both sets of management, iron ore will fall and it will have an adverse effect on their results. To make a better informed decision, investors will be wise to wait until the companies release their upcoming annual reports.
When revenue falls and costs increase, contractors generally take the brunt of the slowdown. There is a seemingly endless list of mining services stocks that will be negatively impacted by a slowdown in mining exports. NRW Holdings (ASX: NWH), Ausdrill (ASX: ASL), Boart Longyear (ASX: BLY) and Emerco (ASX: EHL) have dropped around 70% each in the past year.
With high yields (or so it seems) and low price to earnings, some investors may think these stocks are bargains. However the companies are not discounted quality stocks and like their mining counterparts above, should be avoided until we do our due diligence and make a better informed decision later in the year.
Hutchison Telecommunications Australia (ASX: HTA) is the owner of Vodafone and derives its revenue solely from Australia. Vodafone has had a plethora of issues in the past 18 months and has only just switched on its 4G network at a time when rivals are already making plans for the next technology. For the half year ended 31 December 2012, the company reported a net loss of $393.51 million. Despite having a slight kickback in the share price in the past two months, investors should be cautious, from the surface it looks like ‘no news is good news’.
Many investors don’t need me to tell them investing in airline stocks is dicey. All it takes is one plane to malfunction or pilot error and the whole company can collapse. Qantas (ASX: QAN) currently has a P/E of 28 and its debt makes growth uncomfortable, particularly when it is using new debt to finance old debt.
Ten Network’s (ASX: TEN) new managing director, Hamish McLennen, was a good addition for the failing TV broadcaster, but not enough. The company has a clear strategy of disciplined cost cutting and acknowledges that it’s important to “constantly look for new efficiencies”.
Sometimes words speak louder than actions, but numbers don’t lie. The company’s recent half-year results showed that revenue was $301.7 million but reported a net loss after tax of $292.1 million. Now, I’m not saying that the company won’t have a massive turnaround in the next three years but why take the punt? Although P/E ratios can’t be trusted, when it is as high as 106, alarm bells start ringing.
Good investors find stocks at low prices and ride the gains they deserve from doing cautious research and evaluations. Some say that if you can pick the price movements of 6 out of 10 stocks you’re doing well. But you’ve got to ask yourself, will 6 of these stocks make you money?
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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.
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