I firmly believe that isolating the stocks to avoid is just as important as choosing the right stocks to buy when investing. With that in mind, here are three UK stocks that I intend to avoid at all costs.
British actions to avoid
The first business on my list is a home lender Provident Financial (LSE: PFG). Aside from ethical considerations, this lender has serious problems. It is currently a “floodÂ»Complaints from borrowers who claim the company has misled them.
In the second half of 2020, 10,000 complaints were filed with the Financial Ombudsman Service. These claims cost the company Â£ 25 million.
As PFG tries to come up with a plan to address these issues, it also faces an investigation by the Financial Conduct Authority. These are two serious headaches for the company, and they’re unlikely to go away anytime soon. Shareholders may have to foot the bill if the claims exceed Provident’s resources.
Having said that, the band can make a difference. It’s profitable Vanquis credit card and Moneybarn auto finance operations are still doing well. If he can sort out the home loan problems and focus on those divisions, Provident’s fortunes could improve.
Despite this, I do not plan to include the stock in my UK equity portfolio anytime soon.
Fundraising circleThe 2018 IPO of (LSE: FCH) caused a stir in the city. The company aimed to revolutionize the lending market, directly connect borrowers and lenders, and remove the need for an intermediary bank.
Unfortunately, the company did not live up to the hype. He has constantly lost money since 2015.
However, unlike many UK stocks, the group performed well in 2020. The company’s involvement in the Covid support program has helped it take loans under management to an all-time high of $ 4.2 billion. pound sterling. Despite this, the company recorded an operating loss of Â£ 106million for the year. Fee income rose 25% to Â£ 220million.
While management thinks the outlook for Funding Circle is good, I am not convinced. If the business hasn’t been able to make any money in the past five years, when will it be? If the group continues to lose money, sooner or later it will run out of cash. This is why I plan to avoid the stock at all costs.
Yet the company could prove me wrong. If the economy becomes healthy again in the coming months and years, demand for borrowing on the group’s platform could explode.
With interest rates at their lowest, savers may also be happy to deposit their money with the group. The company also plans to launch new products in the coming months to help companies acquire funds faster.
This could help Funding Circle make more loans, which would generate more fees, which could help the company to make a profit. In this scenario, the outlook for action would change entirely, in my opinion.
Rupert Hargreaves does not have a position in any of the stocks mentioned. The Motley Fool UK does not have a position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations that we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a diverse range of ideas makes us better investors.