10 crappy stocks you should throw out of your portfolio

There definitely are bad stock prices. Obviously, each company has a correct value and as long as there is a value that is correctly priced, there can’t be a bad stock. However, if history is any gauge at all, we often get it wrong. That being said, let's dive into the stocks that you really shouldn’t have in your portfolio.

Whenever you buy a stock, you hope the stock moves up. This can either happen if the company starts earning more or if the market decides that the valuation was incorrect. In the latter, the company doesn’t need to earn more or perform better to make their stock price move up. They only need to convince you that their earnings are worth more.

For E.g. A hardware company making an annual profit of INR 10,000 might be valued at INR 1Lakh (10 times the profit) but a software company with the same profit might be valued at INR 5 Lakhs (50 times the profit!).

This is because the software company can convince its investors that once they’ve written the code and developed their product, they can scale up their product and sell it to millions of customers at negligible extra costs. But the hardware company will have to make a new product each time they want to make another sale.

Now, if you catch the software company in its early days when the valuation is lower, you can ideally ride the wave when investors realize its true value. But sometimes, the lower valuations are warranted. And this is called the Value Trap.

Investors believe that they have got great deals on cheap stocks, not realizing that the company is just not worth much more.

According to our research, the following stocks are value traps: Karnataka Bank, Karur Vysya Bank, and Dhanlaxmi Bank

Obviously, it's easy to ensure that you don’t invest in a fax or analog camera companies now. But a dying industry doesn’t just need to be some form of outdated technology. It can also be an industry that is very heavily penetrated and hence doesn’t offer any sizable growth.

Toothpaste, soaps, batteries all fall in the bucket where the market has already been discovered. People know about these products, own them, and are on the whole, satisfied. There isn’t room to grow.

So even though they have reached the coveted “Product Market Fit”, they now are stuck growing at the speed of the GDP. The only way out is to innovate or diversify.

According to our research, the following stocks fall in capped industries: Eveready Industries India and, (you guessed it) IRCTC.

What’s worse than being in a capped industry? Being at number 2.

Sometimes markets aren’t winner-take-all, and this is definitely true for sectors that are unorganized and/or scattered. FMCG, Banking, and Clothing are all examples of markets that are huge and also have fragmented customers with different needs. But being behind in organized or homogeneous sectors such as Paints might be worse since market leaders such as Asian and Berger will take away most of the market.

Such industries include Ceramics, Glass, Paper but also new age businesses such as online food ordering and online healthcare. The market as a whole will not be large enough to sustain more than 2–3 large players and so most businesses here will never make a lot of money.

According to our research, the following stocks are laggards: Omaxe(Real Estate developments), Gravita India (Nonferrous Metals), Asian Energy (Crude Oil), Liberty Shoes (Leather and Shoes), and CARE Ratings (Credit Ratings).

Related posts:

Backed by Myria chain, BF is the first and only game in the Web3 space to offer VR / PC multiplayer action where VR Players are in control of the Powerful Boss, while PC players team up against it —…

Google knows a lot about you. Using Google Takeout, you can download all the data they have collected about you, and how your privacy is not safeguarded.

Fierce debate has been sparked by the extraordinary images from Bristol today of the bronze statue of Edward Colston being dragged off its plinth by protesters and thrown into the harbour. Seldom…