As we approach the end of the year, many investors will be conducting their yearly portfolio review and mapping out their investment game plan for next year.
While there are plenty of attractive opportunities in the market at present, there are also plenty of companies that investors should stay away from. Here are the five companies Im avoiding during 2015, presented in order of short interest.
High valuation
Right at the top of the list, with 9.8% of its shares out on loan isWH Smith(LSE: SMWH). Since the end of October, WH Smiths shares have jumped by nearly 40%, taking the companysforward P/E to 15.2. And it seems as if this high valuation is attracting short sellers.
In the past, WH Smith has traded at an average P/Ein the high single-digits, so this high valuation, seems unwarranted. The groups earnings are set to expand only 7% next year and WH Smith supports a dividend yield of 2.7% at present.
Struggling to rebuild
Troubled outsourcer Serco(LSE: SRP) is trying to rebuild itself afternumerous scandals have rocked the company over the past few years. Unfortunately, things only seem to be getting worse for the company.
Indeed, after it announced a writedown of assets and rights issue to shore up its balance sheet, the companysshares crashed, reducing the amount of cash the could be raised from a rights issue. Many analysts have now concluded that the rights issue will not be enough to stabilise the company.
At present, 8.4% of Sercos shares are out on loan to short sellers andlooks as if the company is going to struggle going forward.
Missed forecasts
6.9% ofOcados(LSE: OCDO) shares are out on loan to short sellers. As of yet, the group has failed to report a profit despite its high valuation.
It seems as if traders are betting that the companys share price will fall further, before the group can report a trading profit. That being said, City analysts expect the company to report earnings per share of 4p next year. However,Ocado has a history of missing forecast after forecast, and it would appear as if traders are betting that the company will fail to targets once again next year.
Emerging market turmoil
Just under 7% ofAshmores(LSE: ASHM) shares are on loan to short sellers. Ashmore is avalue-oriented emerging markets asset manager andis currently struggling to grow. For example, since 2010 the groups earnings have fallen by nearly 20%, although revenue has remained constant.
City analysts are expecting the company to report earnings per share of 21.6p next year, which puts the group on a forward P/E of 13. But while Ashmores shares do appear to be fully valued, the group does offer shareholders a 6.1% dividend yield, which could be too hard to pass up.
Still, turmoil within emerging markets has scared investors away from Ashmoreand this seems to be the reason behind the high number of short sellers chasing the company.
Slowing growth
ASOS(LSE: ASC) has consistently missed expectations this year and with 5% of the companys shares still on loan to short sellers, it seems as if the market is betting that the company will continue to disappoint.
ASOS recently revealed that the groups sales were slowing. Within its third quarter update the company noted that international sales forthe three months to November 30fell 2% to 141m, driven by a 6% decline in sales outside the EU and the US.
Nevertheless, here in the UK ASOSperformed exceptionally well during the quarter, helped by the Black Friday sale. UK sales rose 24% during the period, while overall group retail sales rose 8% to 246m.
Nevertheless, ASOS earnings per share are expected to contract by 5% next year and based on this sluggish growth, the companys current forward P/E of 64 seems excessive.
Other opportunities
So, it could be sensible to avoid WH Smith, Serco, Ocado, Ashmore and Asos next year. But whether or not you share my view on these companies, I’m confident that you can benefit from readingthis new report from The Motley Foolthattakes you throughthe seven key steps you need to take to become a stock market millionaire.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of ASOS. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
