When it comes to hunting for the right FTSE 100 stocks to add to my portfolio, I find it useful to create a list of companies that I’d rule out investing in.
Of course, this list changes from time to time, but as Europe heads towards a recession, I’m avoiding investing in companies that are already battling declining trends.
I’ve found three stocks that I will avoid buying at the moment. Let’s take a look at them.
The first company I wouldn’t invest in is Imperial Brands (LSE:IMB). The British tobacco company has struggled in recent years due to increased global regulation and public health concerns on the impact of smoking. The stock is down almost 50% in the past five years.
An increase in ESG-specific funds may also harm Imperial Brands. Investors could avoid buying shares in the company, instead opting for more sustainable corporations.
It must be said, the company offers an enticing dividend. At 8.3%, it’s far higher than most FTSE 100 stocks, and if I was looking for passive income stocks then I may be tempted to invest.
However, other than the dividend, I don’t think Imperial Brands offers much else. I wouldn’t be surprised if the dividend is cut in the near future as the company struggles to remain profitable.
2022 has not been a good year for Royal Mail (LSE:RMG). The stock has experienced a large sell-off this year – it was trading close to 500p in January and is now only worth 200p.
The company announced that, in Q1, the Royal Mail division revenue fell by 11.5%. Given declining trends in posting mail, I think the company will continue to suffer.
On valuation terms, Royal Mail does look cheap. It has a price-to-earning (P/E) ratio of around 3.33, which is far lower than competitors such as FedEx, which has a P/E ratio of 11.
Even though it appears cheap, I’d avoid the stock given the increasing competition from the likes of Evri and Inpost that offer similar services at competitive prices.
Out of fashion
The final stock I will never invest in is Boohoo (LSE:BOO). The AIM-listed fast fashion company’s stock has plummeted in the past year and is down almost 85%.
Despite strong performance during the pandemic, growth has significantly slowed since. In the last trading quarter the company announced a 1% fall in UK sales.
Boohoo’s diversified business model does mean that it might not be all bad news. The company already owns the likes of Karen Millen, Coast and Nasty Gal. A further string of profitable acquisitions in the near future could help the company regain some market share as it expands its target market.
The problem for me is that it’s not just declining sales affecting Boohoo shares. The constant stream of scandals and sustainability concerns continue to plague the company and drive investors away.
Yasmin Rufo has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands and boohoo group. 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.
Motley Fool UK 2022