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

Credit: mages Money

There are lots of great companies listed the ASX. The problem is that most of them aren’t available at attractive prices let alone with a decent margin of safety.

For this reason, it can be useful to keep a watch list of stocks you’d love to own because chances are, at some point in the future, “Mr Market” will give you the opportunity to acquire these stocks at an appealing price.

Here are three stocks which would be in my “dream” portfolio, however, at current price levels I’m not buying.

InvoCare Limited (ASX: IVC) is one of the strongest businesses listed on the ASX. It holds a commanding position in the funeral market, has a solid balance sheet, is growing and is incredibly defensive.

The stock has achieved a total shareholder return (TSR) of 16.1% per annum (pa) for the past 10 years.

The company’s attributes are certainly deserving of a premium multiple, however, its forecast price-to-earnings ratio at 26 times is just too steep for me.

Ramsay Health Care Limited (ASX: RHC) has been a long term outperformer thanks to its well-executed growth strategy of expanding its global private hospital network.

Ramsay’s TSR over the past decade has been an incredible 26.1% pa.

Despite its track record and considerable future growth potential, its forecast PE of 27 times is too high (in my opinion) considering the company is exposed to regulatory risks.

SEEK Limited (ASX: SEK) has also been an exceptional long-term growth stock thanks to its market dominance in the online employment classifieds space.

Seek’s TSR has been 15.4% pa over the last 10 years.

Despite its strong, entrenched position, Seek could find itself disrupted from a multitude of players including the likes of Freelancer Ltd (ASX: FLN) and particularly LinkedIn which was recently acquired by Microsoft in a US$26 billion deal. The possibility of competitors taking market share from Seek suggests to me that the group’s forecast PE of 26 times could be too high.

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Motley Fool contributor Tim McArthur 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.

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