2 UK shares I’d avoid at all costs

These two UK shares are facing huge challenges and they could end up having to ask shareholders to foot the bill if they run out of cash.

| 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.

One English pound placed on a graph to represent an economic down turn

Image source: Getty Images

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 firmly believe isolating stocks to avoid is just as important as choosing the right equities to buy when investing. With that in mind, here are three UK shares I plan to avoid at all costs. 

UK shares to avoid 

The first company on my list is doorstep lender Provident Financial (LSE: PFG). Ethical considerations aside, this lender has some severe problems. It’s currently dealing with a “flood” of complaints from borrowers who claim the business has misled them.

There were 10,000 complaints to the Financial Ombudsman Service in the second half of 2020. These claims cost the business £25m. 

While PFG is trying to work out a plan to deal with these issues, it’s also facing an investigation from the Financial Conduct Authority. These are two severe headaches for the firm, and they’re unlikely to go away anytime soon. Shareholders may have to foot the bill if claims exceed Provident’s resources. 

That said, the group may turn things around. Its profitable Vanquis credit card and Moneybarn car finance operations are still performing well. If it can dispose of the doorstep lending issues and concentrate on these divisions, Provident’s fortunes could improve. 

Despite this, I’m not planning to include the stock in my portfolio of UK shares any time soon.

Coronavirus lending 

Funding Circle‘s (LSE: FCH) IPO in 2018 caused a stir in the City. The company aimed to revolutionise the lending market, connect borrowers and lenders directly, and remove the need for a bank in the middle. 

Unfortunately, the firm hasn’t lived up to the hype. It’s consistently lost money since 2015. 

However, unlike many UK shares, the group performed well in 2020. The firm’s involvement in the Covid support scheme helped it expand loans under management to a record £4.2bn. Despite this, the business made an operating loss of £106m for the year. Fee income rose 25% to £220m. 

While management believes Funding Circle’s outlook is bright, I’m not convinced. If the firm hasn’t been able to make money in the past five years, when will it make money? If the group keeps losing money, sooner or later it’ll run out of cash. That’s why I plan to avoid the stock at all costs. 

Still, the business could prove me wrong. If the economy roars back to health over the next few months and years, demand for borrowing on the group’s platform could explode.

With interest rates at bottom levels, savers may also be happy to deposit their money with the group. The company is also planning to launch new products over the next few months to help businesses acquire funds faster. 

This could help Funding Circle make more loans, which would generate more fees, which may help the business earn a profit. In this scenario, the stock’s outlook would change entirely, in my view. 

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.

Rupert Hargreaves 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

Recently released: October’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »