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3 Stocks I'd Never Touch

By Daniel B. Kline – Apr 21, 2018 at 8:47AM

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There's a different reason I'm passing on each one.

Most stock market investors have their own styles. Some people are coldly dispassionate, looking only at numbers in order to make their choices. Others believe you should invest in the brands you know.

I'm somewhere between the two. I look at the numbers, but I don't want to own shares in companies I don't care about. For me, it's like betting on a sporting event I have no intention of watching just because I think I can predict the outcome. Yes, I might make some money, but there's no fun in it.

I buy the companies I use in my everyday life and ones that I admire. Conversely, I avoid businesses which that products I don't connect with, sometimes even when the metrics say otherwise. These are three companies whose shares I would never touch.

A pepperoni pizza

I don't want to invest in a pizza company that can't make a good pizza. Image source: Getty Images.

Domino's

The pizza chain has the numbers in its favor: Domino's (DPZ 4.48%) has grown international same-store sales for 96 straight quarters, while doing the same domestically for 27 quarters. Those numbers are more impressive when you consider that the pizza company has also steadily been expanding, adding about 1,000 stores a year, without cannibalizing existing store sales.

My problem with the chain isn't about its growth or its sales. It has delivered on those. It's with the product.

Domino's has barely acceptable pizza in my view, and its business model isn't built around offering great food. Instead, the chain has made its not-so-good menu super convenient. It's easy to order from the chain, and that drives sales.

That seems like a recipe that will eventually falter when other companies catch up in the convenience space. Even if it doesn't, I don't want shares in a chain where I would only eat if it's 2 AM and nothing else is open.

Sears

For a long time I actually shopped at Sears (SHLDQ). They had a decent selection of men's clothing, and were next to the coffee place I worked many mornings. I've since moved, and that Sears has since closed, but I don't believe in the company for reasons beyond my personal affection for its stores.

Sears has a failing business model, and its CEO, Edward Lampert, has done nothing to turn things around. For five years the retailer has only made money from special circumstances, including the recent corporate tax cut and one-time asset sales. That's not a sustainable business, and even if Lampert can sell more assets in order to keep the lights on, he's just buying time.

Rival retailers, including J.C. Penney,have transformed their merchandise mixes and worked to turn stores into destinations. Arguably Sear's closest rival, Penney has added toy sections in all its stores, revamped its salons, added appliances in more than half its locations, and added more store-within-store concepts.

Sears has mostly sat pat. Lampert has focused on keeping the doors open for a few more days, not giving consumers an actual reason to visit.

Sprint

No. 4 wireless carrier Sprint (S) lacks a well-established identity. The carrier has sort of piggybacked on the success its rival T-Mobile (TMUS 2.62%) has had using lower pricing. The difference, however, is that T-Mobile has a message: It's not just cheaper, it's a carrier doing things differently, which has forced the industry to change.

Sprint does a lot of those same things, but it's a follower, not a leader. In addition, the company has done a good job pointing out that all four major wireless carriers have networks that are good enough. That's true enough, but it's a selling point for choosing T-Mobile as well as it would be for choosing Sprint.

The best-case scenario for Sprint is a merger with T-Mobile or one of the cable/satellite companies. That could happen, and it would send shares higher, but I won't be benefiting from it.

It's not about being right

As you can see above, there's an analytical argument as to why Domino's and Sprint stock could move upwards: One delivers steady growth that has shown no signs of slipping, while the other is an acquisition target. That makes both good picks for some people, but not me.

There's plenty of money to be made on companies I'm proud to own shares in. None of these three make that list, and that's not likely to change.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Domino's Pizza, Inc. Stock Quote
Domino's Pizza, Inc.
DPZ
$330.61 (4.48%) $14.17
Sprint Corporation Stock Quote
Sprint Corporation
S
T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
TMUS
$142.54 (2.62%) $3.64
Sears Holdings Corporation Stock Quote
Sears Holdings Corporation
SHLDQ
J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.
JCPN.Q

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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