Purplebricks Group plc isn’t the only Neil Woodford stock I’d sell today

I hate to go against top investor Neil Woodford, but I just don’t like the look of these two stocks, including Purplebricks Group plc (LON: PURP).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I confess I dislike the latest ads from Purplebricks Group (LSE: PURP) so much I mute the TV whenever I see them, but I try not to hold that against the company as an investment.

There’s no denying that the stock has rewarded early investors very well. The price has more than trebled over five years, but since a peak in July last year it’s lost more than 35%.

I’m really not a follower of share price charts — but I do get a little twitchy when I see a certain growth share pattern emerging:

Should you invest £1,000 in Games Workshop right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Games Workshop made the list?

See the 6 stocks

Everyone piles in, keen not to miss the next big thing. The share price soars, then reaches a peak and starts to fall back a bit. Next we have a second wave of buyers who push it back up, only to see a subsequent decline that typically continues for some time.

Risky stage?

Purplebricks is at the point when that second peak has faded, and the price is now lower than the intermediate dip. Anything could happen tomorrow, of course, but I’ve seen this same thing followed by steady decline so many times that it’s enough to keep me away.

Monday’s news of a “strategic investment from Axel Springer of approximately £125 million including a £100 million subscription for new shares” offered a boost to confidence, with the cash to be used partly for the firm’s rollout in the US. But the market didn’t really respond, and I can’t help wondering if we could be seeing an overstretched expansion plan a little too early.

I’ve previously offered other reasons for my bearishness on Purplebricks, and it remains a sell for me.

Blue sky

The other Neil Woodford stock I wouldn’t touch right now is IP Group (LSE: IPO), which released full-year 2017 results on Thursday.

The company, which invests in a portfolio of early stage businesses built on research from its partner universities, reported net portfolio gains of £94.2m, up from £6.5m in 2016. Reported net assets rose from £768.7m to £1,508.5m, which also seems impressive, and the firm even recorded a profit for the year of £53.4m (from a 2016 loss of £14.8m).

So what don’t I like about it? For one thing, I’m greatly disturbed by a very critical analysis of the company unearthed by my colleague G A Chester. If the opinion offered by J Capital Research is correct, that IP Group shares are worth no more than 75p, then buying at 116p (at the time of writing) could be a big mistake. 

Buy what you know

Two other things keep me away too. Firstly, the diversity and the innovative nature of the firm’s investments mean I really don’t understand enough to evaluate them properly — or properly understand IP Group’s accounts. In fact, very few investors will be able to, and that means I’d largely be investing blind — and that’s something I just don’t do.

The other thing is that I just don’t go for unquantifiable ‘jam tomorrow’ blue sky investments these days. I did occasionally in the past, but my reliance is increasingly on investments where I can see solid earnings and healthy dividends today, and future profits where reasonable estimation is possible.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

3 high-yield dividend shares to consider buying for a retirement portfolio

Dividend shares can provide retirees with regular passive income in their golden years. Our writer picks out three with yields…

Read more »

Investing Articles

Tesla stock has halved. Could it now double – or halve again?

After a wild few months for Tesla stock, Christopher Ruane weighs some pros and cons of the investment case. Could…

Read more »

Investing Articles

Does it make sense to start buying shares as the stock market wobbles?

Does a rocky stock market make for a good or bad time to start buying shares? This writer reckons it…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£15k of passive income a year? It’s possible with the right dividend strategy!

To figure out how much dividends are needed for a lucrative passive income stream, investors must understand which strategies get…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As US markets wobble, I’m listening to Warren Buffett!

The long career of billionaire investor Warren Buffett has included plenty of market turbulence. Here's what our writer's learnt from…

Read more »

UK money in a Jar on a background
Investing Articles

5 shares yielding over 5% to consider for a SIPP

Christopher Ruane introduces a handful of FTSE 100 and FTSE 250 shares he thinks an income-focussed SIPP investor should consider.

Read more »

Investing Articles

Here’s how an investor could invest a £20k ISA to target £1,500 of passive income per year

Can a £20,000 ISA throw off close to £30 per week on average of passive income when invested in blue-chip…

Read more »

Investing Articles

As gold hits $3,000, this FTSE 100 stock is primed for blast off

As Western institutions scramble to get as much gold as they can lay their hands on, Andrew Mackie believes this…

Read more »