If you want good and stable returns for your investment, you must ensure that you pick the right stocks. You must choose stocks that have a great track-record and promising potential for the future. You should make a detailed study about the company and then choose to invest in the same. Never make the mistake of considering only one factor like dividends, earnings, share price increase, net profits etc. If you go by just one of these factors, there are high chances for you to pick the wrong choice of investment. In the light of these factors, Wall Street analysts recommend that buying the following shares should be strictly avoided as of now, because, though their prices are quite high, the other important numbers are quite stagnant. Read further to know more:
Loss in market share and reputation
While big companies like Apple (AAPL, Financial) and Samsung (SSNLF, Financial) have a combined market share of around 96% in the smartphone industry, there is hardly any room left for anyone else. Blackberry (BBRY, Financial), which was once a big name in this sector, holds a paltry share of 0.4% today. It is now just a matter of time before Blackberry runs out of business altogether. Unless the management comes up with some miraculous business strategies, it is quite unlikely that Blackberry will ever get back to form again.
Blackberry, however, should be appreciated for certain aspects like effective cost management and for its ability to generate free cash flow. For the last year, though revenues reported a decline of 33%, free cash flow stood at an impressive $3.1 billion. However, these do not guarantee Blackberry any scope of future growth. Shipments for 2014 cut a sorry figure, as they were lesser than the units sold during 2013 by a whopping 70%. The management of Blackberry should focus on improving the fundamentals; only then it will have a chance of survival. Developers, of late, are designing models only for companies with a wide customer base. Blackberry, with such a small market share, cannot afford this luxury right now. With an ecosystem of minimum apps, reduced customer preferences and an almost negligible market share, investors need to stay away from investing in Blackberry right now, as this stock doesn’t have the capacity to add any value. The falling market share of Blackberry when compared to the Q3 of the 4 years (2011, 2012, 2013 and 2014) can be seen below:
Over dependence on traditional technology
The other company that experts advise investors to stay away from is the technology major, Hewlett Packard (HPQ, Financial). Yes, the company’s share prices have been doing alright; however, the basic business strategy that it adopts is not right. When its peers like Microsoft (MSFT, Financial) have diversified into different areas of business other than hardware, HP is still relying heavily on its laptops and printers. It is quite worrying that HP still heavily depends on its printers for boosting up its revenues. Printers make up for just 1/5th of the total revenues, and this is one area that saq a 5% decline in the last quarter of 2014 when compared to 2013. To add to HP’s woes, the company reported a 5% and 1% decline in revenues and earnings per share respectively during the first quarter. HP is one of the classic examples where investors should not just go by share price trend alone. When revenues are stagnant or declining, it doesn’t make sense to invest in this company, even when share prices are soaring. The following chart shows the decline in sales of various products of HP between the periods 2011 and 2013.
Conclusion
If you want to protect your investment from the volatility of the stock market, you must do enough ground work and ensure that you don’t just go by one or two factors. A company is more than the values you see on paper. A slump in share prices does not mean that a company is doing badly nor does increase in share prices indicate the success of a company. You must know to relate all the values and take a decision based on how well the data that you have gathered, connect with each other. If you find a mismatch like increased prices but stagnant revenues, you just have to simply stay away from that stock.
