Making money through share investing is just as much about avoiding risky companies as it is about picking good ones. Here are potential wealth-destroyers I would avoid today:
Myer Holdings Ltd (ASX: MYR) – Myer has struggled to remain relevant basically since its IPO, and a number of new investors have been stung on the way down because the company looks cheap. I feel that a quantum shift in company strategy will be needed to stem the continuing decline, rather than the tactics that have been carried out so far. Ultimately I feel the business may need to downsize further and/or focus on lifting volume to justify its expensive (and sizable) shopping centre leases.
Genworth Mortgage Insurance Australia (ASX: GMA) – Genworth looks cheap, but it is difficult to conceive of a scenario where investors actually make money in the company, beyond dividend payments and capital returns. Loan volumes are declining and banks are lending more cautiously, reducing the need for lenders mortgage insurance (LMI). On top of that, there's also the (admittedly unlikely) risk that the company blows up if the housing market collapses.
Qantas Airways Limited (ASX: QAN)
Qantas has been a sterling performer over the past few years, but it is hard to escape the conclusion that lower oil prices have been a huge contributor, lowering costs (and thus boosting profits) by hundreds of millions of dollars. Unlike the USA, the Australian airline market doesn't appear to have reached equilibrium, and I don't think we'd find Warren Buffett investing here any time soon. Qantas looks like it's at a cyclical peak and I would be very cautious about buying shares at this point in the cycle.
