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I am constantly looking for the best UK stocks to help bolster my holdings.
However, there are two actions that I personally do not like: Ocado (LSE: OCDO), and Burberry (LSE: BRBY). Although I do not plan to buy shares in the near future, I will continue to monitor developments.
Let me explain my reasoning.
Ocado
Perhaps best known as one of the world’s largest online grocery retailers, Ocado is much more than just a company. It also has a technology division that provides an online platform for the distribution of food products and sales to other businesses to help operations run more efficiently.
The Ocado share price has been in a downward spiral for some time, and the past 12 months have been no exception. The stock is down 61% in this time period from 878p at this time last year, to current levels of 336p.
My decision to avoid the stock is due to a few key facts. First, the company continues to post consistent losses. In fact, it has yet to turn a profit, which to me is a huge red flag. Furthermore, it continues to pour money into the company hand over fist to help improve its situation. This spending is not ideal from an investor's perspective, although I realize that in most cases you have to spend money to make money. Finally, the food industry is extremely competitive and profit margins are often very thin.
From a bullish perspective, it can be argued that Ocado shares could be a long-term recovery bet. For example, recent results show that revenues are slowly moving in the right direction and losses are narrowing. In addition, the technology side of the business potentially holds interesting growth opportunities. Currently, 13 of the world's largest supermarkets have signed up to the platform.
However, there are too many red flags that, for me at this point, the cons outweigh the pros.
Burberry
I'll be the first to admit that I love Burberry items, especially the famous check print that they have become famous for.
However, the shares have been through a terrible time in recent months. They have fallen a massive 70% in a 12-month period from 2,200p at this time last year, to current levels of 650p.
Economic turmoil, including higher interest rates, inflation and geopolitical tensions across the globe, has created a cocktail of disasters. Demand for luxury goods has been hit.
Due to these problems, Burberry's performance has been severely affected. Sales have fallen sharply and its key markets, such as China, have been in turmoil. For example, a first-quarter report released in July showed that store sales fell 21% compared to the same period last year. Persistent economic problems in China could mean that things will be tough for a while.
Like Ocado, I can't help but think there's also a chance for a recovery when it comes to Burberry shares. The stock is trading on a price-to-earnings ratio of just under nine. The historical average is much higher. If the economic turbulence dissipates, earnings could recover.
Finally, Burberry is losing its FTSE 100 Index Its status as part of the recent restructuring and its removal after many years at the top table is a major blow.
I will keep a close eye on Burberry's stock, but I am not convinced at the moment.
