After the recent market volatility brought about by global trade war concerns and fears over rising tensions in the Middle East, I think there are a good number of quality shares trading at attractive levels.
However, not all shares that have seen their share prices fall during this time are necessarily good value. Here are three shares that I would suggest investors continue to avoid:
Fortescue Metals Group Limited (ASX: FMG)
This iron ore miner has come under significant selling pressure over the last few months due to the widening discount that its low grade iron ore has faced. Whilst this has arguably left its shares trading at a dirt cheap price, I would suggest investors hold off an investment until there are signs that the discount has lessened or at least stabilised. In its last update Fortescue advised that the price commanded for its ore in the second-half of FY 2018 would be 62% of the price of the benchmark 62% fines. In the first-half Fortescue was receiving 68% of the benchmark price for its iron ore.
InvoCare Limited (ASX: IVC)
Whilst I am a big fan of this funeral provider's business, I'm not at all a fan of its current share price. Even though its shares have just drifted to a 52-week low, they are still changing hands at approximately 21x estimated FY 2018 earnings. While I agree its defensive qualities and market leadership should justify a bit of a premium over the market average, I think this is being generous. Especially given its guidance for low single digit operating EBITDA growth and flat operating earnings per share in FY 2018. Furthermore, if the weak industry conditions that are being experienced in the UK develop here, then earnings could potentially go backwards in FY 2019.
Sigma Healthcare Ltd (ASX: SIG)
Sigma is a wholesaler and distributor of pharmaceutical products through the pharmacy and grocery sales channels. It is also the company behind the Amcal, Guardian, PharmaSave, and Chemist King pharmacy chains. Although its shares are priced at a lowly 13x trailing earnings at present, I fear this could be a value trap. Not only are conditions in the industry tough at the moment, but Sigma faces the loss of a major supply deal next year when its contract with Chemist Warehouse ends in June 2019. The loss of this contract could potentially create a large gap in its earnings.
