3 shares you’d love to buy, but shouldn’t 

Credit: Dominos

Like most investors, I’m constantly on the lookout for the next good idea for my portfolio and I therefore keep a watch list of what I think are great businesses that I’d like to one day own.

Assuming you’re able to spot a listed business that meets the definition of ‘quality’, your next task is to make a call on its valuation and/or its prospects for growth in the short to medium term.

Here are three companies which many investors would love to own, but should nevertheless remain on the watch list for now.

Sydney Airport Holdings Ltd (ASX: SYD)

Sydney Airport owns and operates Australia’s busiest airport which, given its position as the country’s premier gateway into and out of Australia, has a lot of pricing power in its relationship with its customers.

There’s a lot to like about Sydney Airport if you’re currently an investor. Sources of revenue include landing fees, rent (for the retailers who offer their wares to passengers coming and going), and the dreaded parking and ground transport fees.

The only problem with Sydney Airport as an investment though is its share price. Like the day-rate charged for parking, the share price could cause you an extensive nose bleed.

It’s very possible that the bond-like nature of the stock and the reliable dividend have attracted many income-seeking investors hence pushing up the valuation and driving down the yield.

At a share price north of $7, it’s simply too expensive and the stock may have to sit on my watch list for some time to come.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

There’s no doubt about it, Domino’s management have excelled in their role as custodian for the Domino’s brand in Australia, New Zealand, Western Europe and Japan.

Not merely just another fast-food service offering, it has used clever marketing and the use of technology to sell pizzas in a way that no other food retailer has been able to emulate.

The company’s strong underlying results are coming from organic growth and growth-by-acquisition, most recently in France and Germany, which has resulted in a compound average annual growth rate in shareholder value of 64.38% per annum over the last five years.

The shares though are priced for perfection and any blip in performance may send its price into free-fall. The half-year results to 31 December 2015 show that net profit had increased by 56.7%, so it looks as though I’m going to have to wait a little longer for a buying opportunity.

Monadelphous Group Limited (ASX: MND)

During the mining boom, Monadelphous was a share market ‘darling’ and could do no wrong when the resources and mining industries were buoyant, and its share price reached north of $27.

Today, you can pick up shares for $7.35, with a P/E of only 9.20 and an historical dividend yield of 10.2%.

Is this the ultimate value-play, or a value-trap?

At face value, the shares look extremely cheap and at some point in the distant future they will be a great buy.

I think if you do buy them today, you’re going to be a little early waiting for a recovery, so I’d hold back until there is clear evidence of a pick-up in capital expenditure in the resources and mining industries.

With earnings and dividends forecast to fall by another 25% in the next two years, I’d definitely be keeping the proverbial cheque book closed for this stock.

The Internet is About to Go "Six Feet Under"... And You CAN'T Afford to Miss What Comes Next

In-the-know investors are dancing on the Internet's grave--and gearing up to cash in on an even BIGGER tech industry. Australia--and the world--will NEVER be the same. Dollar for dollar, insiders are calling it one of the biggest new markets in the history of modern business... NOW is the time to get in on the hush-hush industry that could be poised for growth of over 4,463%+ by 2020... And the 1 ASX stock that stands to grow YOUR money right alongside it! Simply click here to learn its name.

Motley Fool contributor Edward Vesely has no position in any stocks mentioned. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.