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Why I would sell these 3 ASX shares

The Australian share market may be home to a lot of quality companies with the potential to generate solid earnings growth over the next few years, but it is also home to a number of shares which have uncertain futures.

Three which I would consider selling today if I owned them are listed below. Here’s why:

Myer Holdings Ltd (ASX: MYR)

Considering retail sales are believed to have picked up in the week before Christmas, this department store operator may not have had as bad a trading period as first feared. So while its shares could get a lift from a better-than-expected half-year result, in the long run I still feel its shares are more likely to sink lower than move notably higher. Unfortunately, as much as I would like to see Myer succeed, I struggle to see how it will regain relevance with consumers. This is especially the case with younger demographics.

Retail Food Group Limited (ASX: RFG)

The embattled food and beverage company is a clear sell in my opinion. While its shares may look dirt cheap at the moment, I believe earnings could slide significantly over the next couple of years making it a classic value trap. My biggest fear is that the negative media coverage will cause a sharp drop in franchise sales and also renewals, thus diminishing its store network.

Sigma Healthcare Ltd (ASX: SIG)

This pharmacy chain operator and distributor is another share I would avoid right now. I’m concerned that Sigma could face a number of years of earnings declines and don’t believe this is reflected in its share price yet. At present Sigma’s shares are changing hands at around 16x estimated forward earnings. Yet underlying EBIT is expected to be down over 10% to $90 million in FY 2018. Furthermore, the potential loss of its major My Chemist/Chemist Warehouse supply contract when it expires in June 2019 could create a large gap in its earnings that won’t be easily filled.

Overall, I would suggest that investors consider swapping the shares above for these quality growth shares.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Retail Food Group Limited. 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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