Treasury Wine worth chucking out

The big listed wine producer really has gone off.

a woman

You鈥檙e reading a free article with opinions that may differ from The Motley Fool鈥檚 Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Just as Treasury Wine Estates (ASX: TWE) thought it best to cut its losses with millions of litres of wine in its United States market, investors should think about doing the same with the stock. You鈥檇 be hard pressed to mount a good case to buy it, and if you鈥檙e holding it you鈥檇 have to seriously consider either reducing your exposure or selling.

The near-term picture ain鈥檛 too pretty and it鈥檚 hard to see when there could be signs of a turnaround. If you鈥檇 managed to offload Treasury Wines when it was higher than, or trading around, $6 from mid-May to earlier this month you鈥檇 have to be pretty content with the decision.

Yesterday鈥檚 19-cent rebound of more than 4% looks more like a dead cat bounce than anything and any more upwards movement will be more likely an opportunity to dump it than buy it.

The worst recent news was chief executive David Dearie鈥檚 July 15 announcement that the company would write down the value of its wine stocks and other assets by $160聽million, cut the price of some brands and destroy $35聽million of its cheaper US stocks. North America was thought to account for 38% of 2011-12 earnings and it was an improving market there and a falling Australian dollar that were fuelling hopes.

It might be a long haul, but with prudent management the world鈥檚 largest pure wine play one day could be worth buying again. The only thing you can say about when that will be is that it won鈥檛 be soon.

Such is the fall from grace that Morningstar, which not surprisingly has a reduce recommendation on the stock, sets its intrinsic value at $3.70, meaning it sees it as almost 30% overvalued even at the current price so far from recent highs. The agency had recommended a sell at $5.82 in early March. Even though it got to $6.47 just a couple of months ago, you鈥檇 have to say that was a good call.

Bell Potter recently put a sell on Treasury Wine and reduced its underlying 2013-14 earnings per share estimate by 30%. Worse still, it reduced its 12-month price target from $4.18 to $2.81. That makes getting out at the recent $4.92 worth considering.

Investors could be reasonably confident they won鈥檛 see any more one-day falls like the 8%-plus on July 15, but unless there is some particularly good news the stock price may keep gradually spilling towards Bell-Potter鈥檚 pessimistic projection.

The shareholders who hang on may find themselves clutching for straws when the company announces its full-year results on August 22.

Foolish takeaway

There might be a time when this stock looks a vintage worth buying again, but at the moment don鈥檛 expect it to age well in your portfolio.

Interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading

Motley Fool contributor Andrew Ballard does not own shares in Treasury Wine Estates.

More on 鈴革笍 Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
鈴革笍 Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
鈴革笍 Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more

asx investor daydreaming about US shares
鈴革笍 How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more

person reading news on mobile phone
鈴革笍 Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more