With over 2,000 shares currently listed on the ASX, I believe successful investing is more about avoiding losers than picking winners.
As legendary investor, Peter Lynch famously said: "In this business, if you're good, you're right six times out of ten. You're never going to be right nine times out of ten."
Although I've been banging this drum for many years, here are five stocks I am avoiding – to keep my batting average above 60%!
- Wesfarmers Ltd (ASX: WES). I'm avoiding buying Wesfarmers shares. It's not because it's a bad business – it's great – but because I think its rich valuation won't hold up if the supermarket sector continues to grow more competitive. My fair value estimate of Wesfarmers shares is around $31. It currently trades at $41.
- Rio Tinto Limited (ASX: RIO). Rio is a sell for any investor looking to make money over the next three years (assuming they don't have 'short' positions). Rio is currently facing the prospect of a prolonged lull in commodity prices. While it'll likely survive a period of lower market prices, I've long said that survival doesn't equal market-beating returns.
- National Australia Bank Ltd (ASX: NAB). NAB is Australia's largest bank by assets. However, it is a serial underperformer when compared to its peers, and while CEO Andrew Thorburn has made significant changes to right the bank over the long-term, its medium-term outlook remains uncertain. When combined with a slowing local economy, increased competition, and regulatory oversight, I think NAB shares are best left on your watchlist, for now.
- Westpac Banking Corp (ASX: WBC). Westpac is in the same boat as NAB for a number of reasons, for example its downside risk significantly outweighs the upside risk, in my opinion. Meaning, even if it can continue to grow its loan book exceptionally fast, while shrugging off competition and keeping profit margins intact, it's already priced for perfection! My fair value estimate for Westpac is around $25 per share.
- Qantas Airways Limited (ASX: QAN). Back in June 2013, I identified 10 stocks to avoid – Qantas was one. While Qantas proceeded to soar 182%, I remain adamant that it is not worthy of prudent long-term investors' dollars. While lower fuel prices have propelled the company back into profit, the airline industry remains an unappealing one to hold shares in over the long term.
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I think each of these five stocks are to be avoided, at today's prices. But there are still plenty of other market-beating stock ideas to be found on the ASX.
