Knowing which stocks to buy and sell isn't easy…
In fact, Peter Lynch – the manager of the best performing investment fund in the world between 1977 and 1990 – famously said, "In this business, if you're good, you're right six times out of ten. You're never going to be right nine times out of ten."
Being "right" more often than not and investing prudently is, arguably, more about avoiding losers than picking winners.
Especially when we consider there's over 2,000 companies listed on the local stock market – we're certainly not going to own them all!
So to help you navigate your way through this maze, here are three stocks I think you should avoid and three stocks you should consider buying…
Avoid these three…
- Rio Tinto Limited (ASX: RIO) – Australia's largest iron ore miner has been criticised for pumping millions upon millions of tonnes of excess iron ore into the market, pushing the commodity's price ever lower. Whilst it is the lowest cost producer and boasts a forecast dividend yield of 5.0% fully franked, it's certainly one to avoid, for now. Motley Fool Pro Portfolio Manager, Joe Magyer, said it best here.
- National Australia Bank Ltd. (ASX: NAB) – has been Australia's worst performing bank for a number of years and with the local economy slowing, now is not the time for long-term investors to bet on a turnaround.
- Telstra Corporation Ltd (ASX: TLS) – is a great Australian company and one of the best dividend stocks on the ASX. However, whilst it doesn't look like a 'sell' (more like a 'hold' in my opinion), at today's prices, its valuation has become quite demanding. Therefore, investors should be patient and look to buy it at a lower price.
Consider buying these three…
- Coca-Cola Amatil Ltd (ASX: CCL) – is facing its fair share of uncertainty moving forward but its brand power is second to none. Indeed at its current valuation, if CEO Alison Watkins can deliver on her goal of low-single digit earnings growth, its current market price is likely to look cheap in hindsight. What's more it's tipped to yield a dividend of 3.8% in the next year, partially franked.
- Woolworths Limited (ASX: WOW) – is also facing its fair share of competitive pressures. But there's one vital characteristic that differentiates Woolworths and Coca-Cola Amatil from many other companies. A strong competitive advantage. At its current price, Woolworths shares look to be good value for long-term investors, in my opinion. They're offering a 4.73% fully franked dividend.
- G8 Education Ltd (ASX: GEM) – so long as this childcare centre owner and operator can: 1) keep occupancy rates above 80%, 2) continue to buy new centres on reasonable EBIT margins, and 3) keep a handle on its debt servicing; it's a great buy today. In fact, the company looks cheap and boasts a forecast 6.6% fully franked dividend.
