The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has a number of shares to choose from. But not all these shares are buys, and often there are a good number which are best avoided.
It’s not always because a company is performing badly. Sometimes great companies can be poor investments due to the market getting so enthusiastic about their prospects that it bids up the share prices to an unsustainable level. Sometimes it can be external factors which make it best to avoid the shares.
There are two shares in particular which I feel investors should look at avoiding right now, and they are as follows:
Link Administration Holdings Ltd (ASX: LNK)
After the market closed on Tuesday, Link released a statement which confirmed that its shares were trading well enough for some of its early investors to reduce their stakes.
This means that pre-IPO investors like Macquarie Group Ltd (ASX: MQG) will be free to sell a total of over $400 million worth of shares on April 8 2016.
Yesterday $3.3 million shares changed hands, which is less than 1% of what could be sold when the embargo is lifted.
It is worth noting that none of the early investors have stated their intention to sell when they can, but should they opt to sell their shares it would almost certainly drive the share price down.
I wouldn’t be surprised to see the shares decline in the run up to April 8, with investors worrying about losing any gains they have made since the IPO. For this reason I would avoid Link for the time being.
Cash Converters International Ltd (ASX: CCV)
Things have been looking a lot more positive for Cash Converters recently. It announced a change of strategy which will see the company divest its UK personal loan book and sell its UK company-operated stores to franchisees.
Despite this I would avoid Cash Converters due to its personal loans business. There are concerns over the personal loan industry that shareholders of Cash Converters and Money3 Corporation Limited (ASX: MNY) should find worrying. Around 44% of its revenue comes from its personal loans segment.
I believe that these concerns explain why the shares are trading at at a trailing price-to-earnings ratio of just 10 at the moment.
There could of course be gains here for brave investors, and regulations may not change. But for me, I would rather focus on investments like the one below.
Motley Fool contributor James Mickleboro has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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