I'm avoiding G8 Education Ltd (ASX: GEM) shares, Wesfarmers Ltd (ASX: WES) shares and Myer Holdings Ltd (ASX: MYR) shares.
Why 'avoid' them?
With over 2,000 companies listed on the Australian market, it's impossible to form a view on every company. Well, at least, an informed view.
That's why I look for a few small things in each company or industry. That is, things I don't like.
For example, I avoid mining shares altogether. I realise I don't have the skill or desire to invest in these companies, so I filter them out.
Next up, I avoid industries with structural issues or generally poor economics. For example, I think real estate investment trusts (REITs) are facing medium-term structural issues with regards to capitalisation rates, interest rates, occupancy and more. Even if there is something worthwhile in the space, I'm happy to miss it.
Finally, valuation is important to me. That's because I know there is no rush to buy anything. It is especially true when it comes to blue chip shares.
Wesfarmers, the owner of Bunnings, Kmart, Coles, Target and more, is one example. Wesfarmers is a great company but its shares rarely fall into 'bargain' territory. However, the company is facing threats from the likes of Aldi, Costco and — soon — Amazon, which I do not believe the market is appreciating.
That's in stark contrast to Myer, the department store retailer. Myer has been a wealth destroyer ever since it returned to the ASX back in 2009 when it traded over $3.80. Myer shares now trade around 93 cents. In my opinion, the company is facing structural issues. In addition to the online craze, department stores are not what they used to be. Many shoppers prefer to go to specialist outlets to buy the clothing or electronics they seek.
Finally, on poor economics, G8 Education shares are not on my watchlist. I owned the company's shares once upon a time but I shortly realised the error of my ways, with a 30% haircut on my investment.
G8 Education is Australia's largest publicly listed childcare centre owner and operator. In my opinion, G8 Education is sandwiched between two slices of Government regulation and smeared with cyclicality.
However, if you ask someone else they might say that the company looks cheap, and pays quarterly dividends equivalent to 6.8% fully franked, which is hard to pass up. Nonetheless, it's not my cup of tea.
Foolish Takeaway
These three companies could go on to thrash the market over the next few years and prove me wrong. That would be fine with me because I know there are many more ASX shares that I can add to my portfolio which I would be comfortable holding. While Wesfarmers shares are on my watchlist, G8 Education and Myer Holdings are not.
