Just because a company is well-known doesn’t mean investors should automatically consider adding its shares to an ISA portfolio. In fact, I see a couple of such stocks I’m avoiding today.
Multiple missed mega-trends
First up is Intel (NASDAQ: INTC), the chip company that will be familiar to most. Indeed, as I type this, there is an Intel sticker on the laptop telling me there’s Pentium processor inside.
Down nearly 70% over five years though, the stock’s struggled for eons.
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However, Intel was once the world’s undisputed chip titan before badly losing its way. There are a few reasons why, but basically it took its eye off the ball and executed poorly.
For example, it missed the biggest consumer tech wave of the century — smartphones — and later lost Apple as a customer for Macs (in 2020). Then it failed to lead in the artificial intelligence (AI) revolution, losing out spectacularly to Nvidia.
Under the previous CEO, Intel attempted to enter the third-party chip manufacturing business to take on Taiwan Semiconductor Manufacturing Company (TSMC). That also hasn’t been a success, pushing the firm to a $2.8bn loss in 2023, its first annual loss in decades.
In recent days, the firm sold a 51% stake in its Altera programmable chips unit for $4.46bn. Perhaps it can use this cash to pursue growth avenues and reinvigorate the business. However, it’s worth noting that Intel paid just under $17bn for Altera in 2015. So it’s selling a majority stake at a lower valuation.
Given the long-standing record of poor innovation and capital allocation, I have no intention to invest.
Swiping left
The name Match Group (NASDAQ: MTCH) might not be immediately familiar, but dating app Tinder probably is. The company owns this, as well as Hinge, Meetic (a leading dating service in Europe), and many niche apps.
Over the past five years, Match stock has crashed 70%. This is largely because the company’s number of paying users has fallen for several consecutive quarters, including on its flagship Tinder app.
Having said that, the company’s still profitable. This year, it’s expected to generate earnings per share of about $2. That puts the stock on a low forward-looking price-to-earnings ratio of 14. That’s the sort of multiple I’d expect to see from a FTSE 100 blue-chip, not a Nasdaq tech share!
Meanwhile, there’s a 2.6% dividend yield. So on this basis, it could be said that the stock offers decent value.
The issue I have here though is that there seems to be a paradox at the heart of the business model. Most of Match’s apps are purportedly there to help users find a partner. But once they do, they delete the app.
So when the product works, it loses users, which is unlike most successful digital platforms (Netflix, YouTube, etc). And if it isn’t effective, users burn out or become disillusioned (especially men, who make up the bulk of Match Group’s paid subscriber base).
In 2023, group revenue was $3.4bn. This year? It’s forecast to be $3.4bn.
I think the paradox I’ve just described is why the company has failed to scale like other tech platforms, despite owning nearly all of the most popular dating apps. Therefore, I continue to avoid the shares.
