Today, the Fairfax press highlighted the underperformance of three popular Australian stocks – Woolworths Limited (ASX: WOW), Myer Holdings Ltd (ASX: MYR) and Santos Ltd (ASX: STO) – which has come about as a result of 'unexpected' management shake-ups and profit growth downgrades.
No shareholder likes to be on the receiving end of a profit downgrade or shock management departure.
However, as savvy investors know, the best time to go hunting for bargain stocks is when blood is in the streets and myopic shareholders liquidate their investments over concerns which, to the long-term investor, prove extraneous. Indeed, time is the friend of the long-term investor.
Let's not forget too that to be a long-term investor, inherently, you must be optimistic about the future outlook and general business conditions as a whole.
Meaning, if you're planning to invest your money for 5 or 10 years you are assuming bigger and better things lay ahead for the company and/or industry which you invest in – why else would you do it!
Obviously, not every falling stock will prove to be a fantastic turnaround story. As Warren Buffett famously quipped, "Turnarounds seldom turn."
Outdated business models and dogmatic management teams should have no place in a long-term investors' portfolios.
Should you buy Santos, Woolworths and Myer?
When it comes to tough business models, Myer's department store offering is certainly up there. Whilst a management shake-up can be often needed to revitalise a company's image, brand or service, Myer's ability to grow its profits from here will be a tough ask, given the rise of scalable online retailers threatening its existence.
Without a durable competitive advantage, Myer's earnings are at risk over the long term.
Undoubtedly there is an opportunity for investors to potentially profit from any takeover offers that come Myer's way, but investors should be mindful of the risks before investing with the hope of an acquisition taking place.
Santos, the oil and gas giant, is another ASX-listed company selling a commodity product with no durable competitive advantage. Indeed it has no control over the prices it receives for its products (oil and gas) and isn't the lowest cost producer. So despite its beaten-down price, investors are advised to proceed with caution.
Finally, the recent share price fall of Woolworths has been well documented in the financial media. However, the sell-off may have been overdone.
Whilst slowing growth is a concern for any company, it cannot be unexpected when one as large as Woolworths is already one of the most dominant in its industry.
Indeed, competition is strong, especially with the arrival and expansion of foreign giants Aldi and Costco. However Woolworths supermarkets are the most profitable and the ones most capable of fending off competition, in this Fool's opinion.
Further, its earnings are reliable and defensive, giving it a sustainable dividend yield. Its lower share price has also improved its valuation and leads me to believe Woolworths is a strong buy for investors seeking income through the entire economic cycle.
