Investors are always looking for the next stock to buy. I’d probably buy around half of all FTSE 100 shares myself, if I had the money. But I expect everyone out there also has some in mind that they’d never buy.
I should probably never say never, and always keep my mind open. But at least as they stand today, I wouldn’t touch these stocks with a bargepole.
Ocado
First up is online grocer Ocado Group (LSE: OCDO). Or do I mean cyber-shopping technology developer Ocado? And that’s the problem. What is it, and what model should I use to value the shares?
Ocado was one of the stock market darlings of the pandemic years. Its share price soared so high its price-to-earnings (P/E) ratio reached… oh, wait, there are no profits, so it’s a big negative.
At the interim stage this year, the balance sheet showed £759m of net debt. Ocado looks just like one of those small-cap, jam-tomorrow growth shares. Except it’s in the FTSE 100, with a market-cap of nearly £6bn.
Ocado might reward investors well, or it might wipe out their cash. I have absolutely no idea of how to even guess which way it might go. And that’s why I won’t buy.
BT
My next choice is one I’ve actually come close to buying a number of times over the past few decades, but never have. I’m talking about BT Group (LSE: BT.A).
If we ignore the big share price bubble around the turn of the century, it looks to me as if BT has been eroding shareholder value for decades.
I’ve always kept away for one simple reason. First-half results released in November showed net debt of £19bn, up another £0.8bn since the same time a year ago. That’s way more than BT’s £12bn market-cap. And there’s still a pension fund deficit hanging around too.
The attraction of BT is that the board prioritises dividends, with a forecast yield at 6.2%. So I could ignore everything else and just pocket the cash. But I just can’t bring myself to do it, not with that debt.
IAG
Then I come to International Consolidated Airlines (LSE: IAG), the owner of British Airways and Iberia.
To invest, I want to see some competitive advantage, and reasons for customers to choose a company over its rivals. I see none here. Flyers almost universally buy their tickets solely on price.
I also like a company that has some control over its costs, and some safety margin for handling short-term supply pressures. I see little here. Airlines pay whatever the market demands for fuel, maintenance, landing rights, and all the rest.
As it happens, I think there’s a good chance of a decent long-term recovery at International Consolidated Airlines now. But I’ll never forget the old joke that the best way to become a millionaire in the airline business is to start out as a billionaire. I won’t buy airline shares.
