It can be tough to find good businesses to buy. Sometimes investors can work the problem from the opposite end, by making lists of companies that they wouldn't buy. Here are three companies I'm definitely avoiding throughout 2017:
Medibank Private Ltd (ASX: MPL)
Despite Medibank's recent share price rise, I think the market is underrating the types of issues that it faces, with regards to high levels of customer complaints and loss of market share to competitors. Although the new CEO has implemented a plan in place to arrest the decline, I think it is likely to result in increased costs and will take time to have an impact. The sheer number of complaints levelled against the company suggests to me that it will take Medibank some time to repair its reputation. On top of that, Medibank is priced in a way that does not account for these issues. I don't believe the company is a buy today.
Inghams Group Ltd (ASX: ING)
This recently-listed poultry manufacturer caused some media waves during the float process, with a number of organisations weighing in on its prospects. As supplier to the two major supermarkets, Inghams depends on its ability to negotiate with customers in order to maintain its profit margins. It also has no ability to control the actions of competitors like TEGEL GRP FPO NZX (ASX: TGH), who might start a price war to grow market share. Inghams has forecast huge cost savings to be extracted from the business in the next couple of years, which theoretically could provide a nice boost to earnings. However, I don't think those savings will manifest in a way that means higher profits for shareholders. It will more likely mean increased marketing or lower costs for customers.
Origin Energy Ltd (ASX: ORG)
Origin Energy is interesting because of the proposed spin-off of its oil and gas assets later this year. However, I have limited interest in the parent company. The spin-off will result in lower debt and a more focused business, but it will leave Origin as an uninspiring electricity and gas generator/retailer in a mature market. That's something that Origin is good at, but a) I don't think the rewards for shareholders will stand out from the crowd and b) I'd rather wait for the transformation to complete itself before taking a closer look.
