**Updated on 1st September 2019 with additional details on 5 specific shares I am avoiding. Beware for value trap shares**
Times are changing
Yes, I will still be investing in UK shares, but I am being selective on what Brexit UK shares to avoid and reduce my portfolio risk.
1. Airline Companies
I am avoiding investing in any UK or EU airlines at all cost. The profit margins are getting squeezed. Many major and low-cost operators are being decommissioned. Online travel companies are extremely competitive and reducing profits for the major airlines. No one buys tickets in advance now as last minute travel bargains can be found easily. Airline companies shares are very volatile to news, scandal and bad rep. One angry passenger videos can easily wipe 5% of airline stock price in a day.
2. Retail Companies
Regardless of cheap stocks from Tesco, Sainsbury, Next, Primark, Car Phone Warehouse; I am not investing in these companies. As a shopper, I am not convinced brick and mortar business will sustain the future growing sales. The Europe and UK populations are not exactly growing like the US, India and China. Online E-commerce for the next decade will dominates consumer spending. My money is safer under my bed with inflation.
3. Local Banks
LLOYDS and RBS are always in the headlines for most viewed and traded shares. This is mainly due to their high potential returns from their 2009 falls and failure. With high growing dividend payout, I am still not convinced with their future returns. Firstly no diversification outside of the UK or EU. Poor transition into future FINTECH technology. Poor online securities hurting their business. UK Brexit shares I am avoiding!
4. Utility Companies
National Grid, United Utilities, SSE and host of major utilities companies are at risk with the rising interest rates. Despite their generous growing dividends, these companies are at high debt. With ageing equipment across the nation, they are required to maintain, upgrade and expensive man hours cost due to the rise of the minimum wage. These companies are not exactly growth companies too. Government and politics seem to have a heavy influence on capping energy prices and mandatory changes despite being public limited companies.
5. House Builders
House price will collapse. Despite all the reports, I am not convince housing market will rocket for the next decade. The house prices in key parts of the UK like London, Manchester and Edinburgh have bubbled well for the last decade since the 2009 crash. Despite a shortage of homes, high-interest rates, growing debt; the new UK generations will not be able to buy brand new houses. The rental market would be the norm for the next decade at least. Housebuilder stocks have great dividends however unreliable payout year after year.
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Popular UK Shares I would Further avoid for 2019
Let me start off with two of the most watched and searched UK shares. These two companies have more article and blogs written than any other large capital shares on FTSE100. From my last 3 years of observations, these two companies received more commendation and buy rating due to their undervalue technical analysis and excellent growth potential.
Personally, I feel these Sirius Mineral and Lloyds Bank lack the fundamental X-Factor.
Let me justify. Sirius Mineral is not making money. Regardless of the huge potential, any investment made are for their future value in 202X after full production and amazing Potash market value etc. Do you know there are many amazing UK, EU, US companies whom are making money and have a more realistic potential value. Can you wait till 202x? Living in the UK, I have never seen a project timeline expectation on target and under budget too.
Lloyds…oh …Lloyds. Since 2007, Lloyds have not recovered. With the slight UK interest rates rise (profitable period), Lloyds have paid their nose through the PPI claim scandal. Now with UK going through a downturn of a negative bond yield and downward economic cycle, there is no room for Lloyds to recover for the next 5 years. The company are not re-investing into modern financial technology and also no exposure to international market. Revolut and Monza (new fintech e-banks) are disrupting traditional banks and millennial are no longer wanting traditional bank current and saving accounts. No new generation customers and declining profit. With Brexit risk exposure, Lloyds do not have any international busines to hedge their risk at all. Do you hear the ringing of Northern Rock in the back ground. A company who never survived 2007 banking crisis, will Lloyds survive the next 202X financial crisis?
Royal Mail and National Grid are paying excellent dividends. There two companies are always on the top 10 most watched stocks for UK investors. Do you know Jeremy Corbyn are standing at 5/2 to be the UK next Prime Minster in the next general election. When it happens, Jeremy Corbyn will be nationalising these services such as utilities and the mail deliveries to ensure prices are cap to ensure working class families can reduce outgoings. These business will not be a money making machine as before.
British Telecoms is another high paying dividends with huge potential for growth returns. um…..5G is coming. When 5G goes full maturity by 2021, homes landlines and internet broadband will reduce significantly. Not every household required top broadband speed for gaming and downloading. Deploying a 5G mast would be far cheaper than long run of copper cables in rural areas of UK. Mesh 5G network will be delivered with technology investment push such as self driving cars, medical technology and drone robotics. The reason why Vodafone is deploying and selling high speed broadband despite 5G business is because they are trying to capture existing broadband customers and turning them into long term loyal 5G customers without switching cost.