Who wouldn’t want to buy a stock when it’s cheap? Well, the problem is that even lowly-priced companies — collectively known as value stocks — can still prove to be horrible traps for the unwary or the just plain unlucky.
With this in mind, here are three FTSE companies I’ll continue to avoid in 2024.
Hogwash value share?
There are things I like about greetings card supplier Moonpig (LSE: MOON), at least initially. Operating margins are great compared to the market in general, for example. A price-to-earnings (P/E) ratio of 15 also looks pretty good value for the consumer cyclical sector.
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The trouble is that I’m still unable to identify a competitive advantage here — something Warren Buffett calls an ‘economic moat’. Does it sell anything that I can’t get cheaper elsewhere? I’m not sure it does.
This might help explain why the shares have lost two-thirds of their value since listing in February 2021.
On a positive note, the very same stock is up almost 40% in 2023. I can’t deny those gains would have been nice to have. A recovery in consumer confidence next year may be enough to push the price even higher.
But gambling on outside factors working in my favour is not the Foolish way of investing. I think it’s far better to buy quality stocks that can be held for years, even decades. This, I submit, is not one of them. There’s no dividend either.
No spark
I’m also steering clear of electricals retailer Currys (LSE: CURY). That might seem strange considering its stock currently trades on a very low valuation of six times earnings, which could make it a good value buy. However, I think the recent news flow justifies my stance.
Back in September, the company announced that revenue trends in the UK and Ireland were improving but an expected 2% like-for-like full-year decline.
Elsewhere, trading remained challenging in the Nordics despite efforts to reduce costs. This included the axing of the final dividend earlier in the year.
Never say never, but I can’t imagine business will have improved dramatically since then. Interestingly, half-year numbers are due on Thursday (14 December).
Regardless of what happens on the day, it’s worth noting that Currys has become popular with short sellers — traders betting a share price has further to fall. That’s hardly encouraging.
Does Currys have the potential to consistently deliver from here? I just can’t see it.
Taking a kicking
A third ‘value’ share I’ll be avoiding is one I’ve been wary of ever since it was listed. That’s fashion footwear retailer Dr Martens (LSE: DOCS).
This appears to be another company that was frighteningly overpriced when it came to the market. Tellingly, the share price has dropped a staggering 80% since then as profits have slumped.
Again, there’s an argument for thinking that the end of the cost-of-living crisis could see a rally in the stock. A forward P/E of 11 certainly looks attractive.
However, fashion can be fickle and past experience tells us that Dr Martens can be ‘in’ one minute and ‘out’ the next. To me, that’s a recipe for a rollercoaster ride of an investment and not one that I’d particularly enjoy.
With the prospect of the dividend being cut if things don’t improve soon, I see no reason to get involved.
