At any given time, investors have three options when it comes to share investing – you can either buy, hold or sell.
Investors generally give the most thought when it comes to buying, but often neglect how important the decision can be to hold or sell.
Selling is often the hardest process, especially if investors have developed an emotional attachment to a stock after holding it for many years. It is important to leave emotions at the door when it comes to investing and investors should not be afraid to part ways with a stock if the business case has changed or the valuation becomes uncomfortably stretched.
As 2015 draws to an end, here are three stocks that I think are a buy, hold and sell for 2016:
BUY – Shine Corporate Ltd (ASX: SHJ)
The share price of Shine is down by more than 32% since the start of the year primarily as a result of the negative sentiment created by the downfall of Slater & Gordon Limited (ASX: SGH) during the second half of the year.
Interestingly, the company is not suffering from any of the issues that are plaguing Slater & Gordon including accounting discrepancies, flashy (but expensive) acquisistions, regulatory change in the UK, poor cashflow, high debt and incompetent management.
In fact, Shine's underlying business has continued to strengthen over the course of 2015 and this is expected to continue during 2016. The company continues to makes sensible acquisitions and has been successful in diversifying its practice areas into more profitable markets of the legal sector.
Shine also has a robust balance sheet with a high level of working capital and a negligible amount of long term debt.
With the current share price at around $2.03, the stock is trading on a price-to-earnings (P/E) ratio of less than 10. This is certainly an attractive entry point, despite the negative sentiment in the sector, and considering the company is expected to deliver earnings growth of around 25% in 2016.
HOLD – REA Group Limited (ASX: REA)
Despite getting the wobbles half way through the year, the share price of REA Group has managed to stage a spectacular comeback in the second half of the year to finish more than 21% higher.
The company remains the dominant provider of online residential property listings in Australia and has simultaneously expanded its business model successfully into overseas markets. On top of this, REA Group has recently made some important strategic acquisitions including that of iProperty Group Ltd (ASX: IPP).
There remains a huge global opportunity for REA Group and if its track record is anything to go by, the company could continue to deliver spectacular returns for shareholders.
Although I remain positive about the company's long term outlook, the recent strength in the share price has made the investment opportunity less attractive. REA Group is now trading on a P/E ratio of more than 33 and for that reason I believe investors who own the stock should keep holding but new investors should probably wait for a pull-back before making a substantial investment.
SELL – Qantas Airways Limited (ASX: QAN)
Qantas could very well be the biggest turnaround story over the past two years with the share price recovering from lows at around $1 to trade at $4.14 today.
The airline has been successful in implementing a massive cost-cutting program and has benefited greatly from the collapsing oil price.
Investors need to note that airlines face a number of factors outside of their control that makes forecasting earnings nearly impossible – one of which is the oil price.
Ideally, investors should invest in airlines when the oil price starts to trend down from the peak. This has already well and truly occurred in the current cycle and the risk for investors now, is that the oil price could start to slowly trend upwards again. If this occurs, Qantas' share price will likely move in the opposite direction. In essence, Qantas could be thought of as a commodity type stock – but in reverse.
As there is more downside than upside potential in my view, I think investors should take profits and leave investing in Qantas for traders and short-term investors.
