What makes a stock good to buy? Investors spend a lot of time looking for companies that will perform well in the future, those that have sustainable growth prospects, operate in a dynamic industry, benefit from sound management, have competitive advantages and strong barriers to exit. ‘entrance. But what about bad deeds? How can some investments go wrong? In this paper, we seek to categorize different European companies to avoid unpleasant surprises as much as possible.
Which categories of companies tend to underperform?
1/ Companies in highly capital-intensive sectors operating in a very competitive industry. Even impeccable management cannot make a big difference. We think of airlines, automobile manufacturers and telecommunications companies.
Here is a list of European companies affected by these characteristics (source: Stock Screener Zonebourse)
2/ Traditional companies that are moving forward in sectors undergoing rapid transformation. Visibility into the future is often quite low. These are certain chip manufacturers who are too focused on certain specialties which have made them successful in the past, media not diversified enough and television channels as well as shopping center managers. Evolving favorably in a rapidly changing market requires many qualities: being able to make the right investments at the right time, to evolve towards a different business model, to understand the new needs of consumers and to adapt a new coherent offer … all this is not easy, especially in a world where the cost of debt is high.
Some European companies concerned (source: Stock Screener Zonebourse)
3/ Companies that have had a string of bad news, “red flags”, whether management errors like at Stellantis, quality problems with Philips, a series of bad financial publications at image of EasyJet, of transformative mergers which did not bear fruit like for example at Bayer (with Monsanto) or a mix of a bit of all that with Volkswagen, Continental, Swatch or even Reckitt Benckiser.
4/ Companies close to the peak of their production level. We think of the automobile (some time ago) with the arrival of electric vehicles from Tesla and Chinese companies, of the renewable energy sector with the concerns of the big names Vestas and Siemens Gamesa. The latter was also delisted by its parent company, Siemens Energy.
The worst performances of large European companies worth more than $10 billion over 10 years
Be careful though. These companies are not all to be blacklisted. Some have made bold choices, like the French real estate company Argan, which operates in the market segment of development and promotion of logistics platforms. For its part, Porsche operates in a particular automobile division and has a well-known history and reputation. However, all these companies encounter difficulties which prevent them from developing their growth at full capacity. You must therefore be selective in the selection.
This article was inspired by a reading by Robert Armstrong in the Financial Times.
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