5 high-profile stocks to be avoided at the current juncture

Investing in stocks is always fraught with risks and, therefore, the choice of stocks depends, to a large extent, on the risk appetite of investors. For instance, some high-risk stocks which may look attractive to a particular class of investors may not seem to be a good bet to investors who are not willing to take a chance.

Still, according to experts, there are many high-profile stocks around which are not worth investing at the moment. It does not, however, mean that all of them are essentially a bad bet and should never be considered for investment. In fact, anything may happen tomorrow which may turn the tide in their favour and may make them the darling of investors again.

That does not, however, mean that one should throw all one’s caution to the wind and should go for any stock which is available for investment. For the sake of common and risk-averse investors, therefore, here we take a look at some high-profile, high-risk stocks which, according to market experts, need to be avoided at the current juncture.

Here they go:

Indiabulls Power:

Indiabulls Power has a very high-risk profile for the average retail investor. The company is to start generating cash flows only after 2012. It is planning to set up 6,615-MW of thermal power generation capacity at a cost of Rs 31,052 crore in the next four years.

Also, “the company is yet to arrange fuel linkages for all its projects, except for the Amravati Phase 1 project which is to come up by June-September 2012. Further, the company lacks operating history and experience in power generation which increases the doubt over its ability to execute projects of such mammoth scale,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.

It is better, therefore, to avoid this stock at the moment, and instead watch the company’s performance for some time before taking a call.

Omaxe:

The balance sheet of the company is overburdened with debt. The company’s debt of around Rs 2,000 cr is more than its market capitalization of Rs 1700 cr. Also, the company’s construction activities have decreased a lot.

“Omaxe is one of the real estate players mainly focused on building and promoting luxury villas and penthouses, the demand for which has seen a drastic fall and will take a long time to recover. This has impacted the company’s results very severely. Thus, we believe that though the outlook for the realty sector is improving, yet one should avoid this counter,” advises Kapur.

MTNL:

The company’s performance has been lackluster in the previous few quarters due to limited presence (saturated circles of Mumbai and Delhi) and increasing customer preference for other telecom players like Airtel, Vodafone and Idea. The sector has become very competitive due to new players entering the market which are likely to impact ARPU adversely. The Mobile Number Portability (MNP) is also going to affect the mobile segment of MTNL. The growth of subscriber base is also under pressure.

“Though the company has a cash balance of nearly Rs 4,800 crore, yet the imminent 3G license fee payment is expected to result in a cash outflow of nearly Rs 640 crore. Further, the expected losses in the coming years are a cause of concern,” says the MD of one of India’s leading stock broking houses on condition of anonymity.

HFCL:

The company has questionable fundamentals as there have been huge accumulated losses in the book. This stock used to be traders’ delight during the IT Bull Run in 2000 and hit an all time high of nearly 2450. There are more than 44 crore shares issued and lots of investors are already stuck in the stock.

“Therefore, on every rise this stock will be under pressure. Promoters hold only 2% of the total shares whereas public holding is about 68% and the rest is mostly held by domestic institutions. Moreover, there has been no dividend or any other benevolent corporate activity for years that may help investors,” says Kapur.

Educomp:

Education is a high growth sector and this stock has been a star performer for the last couple of years. However, every sector and stock idea reaches a stagnation point at some stage. Usually this happens when the valuations are very high and the view of nearly all market participants is very positive on the stock.

Kapur says, “Educomp is one such company where the valuations are very high and factor in all the positives that are likely to unfold over the next couple of years. The risk-reward ratio in this stock is very unfavourable. Though this is still a favourite of the market, we believe it is better to be a contrarian now and recommend existing investors to book profits and new investors to stay away from this counter.”