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He FTSE 100 It's full of cheap stocks, but I wouldn't buy them all. Here are three that I refuse to touch, even though many investors would.
The first is Vodafone Group (LSE: VOD). There's no mystery to its popularity given today's surprising expected dividend yield of 10.4%. However, that has seemed vulnerable for many years and now the board has bowed to the inevitable.
Vodafone will also cut its dividend in half from 2025, reducing the expected yield to a more sensible 5.81%. That's still above the FTSE 100 average of 3.9%, but there are other reasons why I'll look elsewhere for my income.
I have renounced this action
The Vodafone share price has been falling for as long as I have been buying shares. It has dropped 50% in five years and 25% in one. Inevitably, it looks cheap, trading at just 7.1 times earnings. And I accept that at some point the stock may recover, with Margherita Della Valle, the last CEO, working to turn things around.
Vodafone has already raised 12 billion euros with the sale of its Spanish and Italian divisions and plans a share buyback for 4 billion euros. But I still feel the company has disappointed investors too often and I won't bet my money on its recovery.
Talking about disappointments brings me to the second part that I won't touch on: grocery fulfillment technology. Ocado Group (LSE: TOC). His shares have also taken a hard hit. In January 2021, they increased to 2,883 pence. Today, they are trading at around 457p, down 85%.
To be fair, they are up 8% in 12 months, but they are falling again. There is a chance they will rebound when interest rates fall, the economy recovers and investors are ready to bet on risky growth stocks again.
However, like Vodafone, Ocado is a serial loser. He has only made a pre-tax profit in three of his 22 years, and a fourth profit seems a long way off. Hope springs eternal, but what really worries me is the consequences of their partnership with Ocado Retail. Marks & Spencer Group. The high street chain is refusing to pay a £190m bill, claiming Ocado has failed to deliver on its promises. I won't go near that.
Current cut
I would not buy an energy giant focused on renewable energy ESS (LSE: SSE), neither. In 2022/23, SSE paid a dividend of 96.7 pence per share. It has been revalued to 60p for 2023/24, cutting the yield from 6.16% to 3.79%. The board is planning “annual increases of at least 5% until March 2026”But I'm not tempted yet.
The big appeal of buying SSE shares was income rather than growth, and now that income is being cut. The share price is down 7.94% in 12 months.
The road to net zero was never going to be easy and the SSE has to invest £9 billion in critical infrastructure over the next four years. Production has been affected by adverse weather and brief plant shutdowns. Higher interest rates have driven up costs and supply chain delays have slowed the installation of turbines at Dogger Bank A.
SSE still expects to achieve a forecast of more than £750m in adjusted operating profits, but for me the risks outweigh the rewards. It looks cheap to trade at 9.54 times earnings, but being cheap isn't enough on its own. I will avoid it.
