Should you buy these unloved shares?

Warren Buffett’s mentor Benjamin Graham once stated that: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

This has been interpreted to mean that in the short term the movement of share prices will be dictated by how popular or unpopular shares are, whereas in the long-term the quality of a company and the results it releases will ultimately drive the share price correctly higher or lower.

Which leads me onto the two shares below, which are amongst the most unpopular shares on the local share market right now.

Are they unpopular for a reason or should you consider buying them?

Domino’s Pizza Enterprises Ltd. (ASX: DMP)

This pizza chain operator and former market darling has come under pressure over the last 12 months after both its full-year and recent half-year results came in below expectations. As well as this, there has been heavy insider selling. Whilst the selling appears to be for legitimate reasons, it is still a little unnerving for shareholders.

Despite all the negatives I think that Domino’s is still a good option for investors that are willing to make a patient buy and hold investment. After all, the pizza chain operator intends to almost double its store footprint and increase its margins significantly over the next few years. If it delivers on this then I believe its shares will be notably higher than where they are now.

Retail Food Group Limited (ASX: RFG)

This food and beverage company is another that has come under significant pressure over the last 12 months. Whilst its shares have been on the decline for some time, the majority of their declines have come in recent months after negative media coverage of its business practices.

Unlike Domino’s, I don’t see a positive ending to this one. I suspect that Retail Food Group’s store network will continue to reduce over the next few years if the negative media coverage continues to impact franchise sales and renewals. For this reason I would stay clear of the company’s shares.

Lastly, these three shares are amongst the most popular on the market at the moment and justifiably so. Do you own them?

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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 Scott Phillips.

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