One stock every investor should sell and three to buy instead

Should you buy these 3 stocks?

Make the call to sell your underperforming company and replace it with these winners.

Regan Pearson

Foolish analyst/writer Regan Pearson has been writing for the Motley Fool since 2012. An analyst by trade and a Fool by heart, he revels in giving the numbers meaning and translating them into practical, actionable advice for investors. Regan subscribes to the Foolish philosophy finding and buying shares in great businesses that can grow and reinvest at high rates of return to compound wealth for decades to come. He is a graduate in management and finance, with a particular interest in personal finance, investment psychology and New Zealand dual-listed stocks.

Published March 10, 2014 4:30 am AEDT

It will be a different company for every investor, but chances are that somewhere in your portfolio, amongst your 10-baggers and top dividend yielders, sits at least one dead-beat, poor performing company that should be cut loose.

Maybe it's a company in a dying industry, a poorly managed company, or just a speculation that didn't work out, but it is the one company every investor should sell to ensure long-term success.

We have all been there. For me it was an oil refinery company I bought because I thought it represented value, without fully appreciating the industry was in a state of chronic over-supply and weakening margins.

I got it wrong, one of the three key reasons to sell a company. The other two reasons are changes to the company which means it no longer fits your investment criteria, or to buy better opportunities.

And with some fantastic opportunities available on the S&P / ASX All Ordinaries Index (Index: ^AXAO) (ASX: XAO), any wrong decisions or changes to companies mean the stock should be quickly cut and replaced by a company with better long-term prospects.

Companies like Telstra Corporation Ltd (ASX: TLS). Telstra is a strong player in the telecoms industry and had a solid first-half result, growing earnings per share (eps) by 8.7% and boosting revenues by 3.6%.

SkyCity Entertainment Group (ASX: SKC) is another company with strong long-term growth prospects. The casino operator is currently undertaking two big growth projects in Auckland and Adelaide in exchange for casino licence extensions and approval to add additional gaming machines and tables.

Cooper Basin oil and gas producer Senex Energy Ltd (ASX: SXY) is also poised for big growth. The company has drilled 22 wells in the current financial year, 20 of which have been cased and suspended for further testing and production, part of the company's aggressive growth strategy.

Foolish takeaway

It can be hard to admit that an investment no longer makes sense, especially when it means selling at a loss. However with some great opportunities across a range of industries, selling your underperforming company and replacing it with a winner is likely to serve your portfolio best in the long term.

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