2 ASX shares I’d give a wide berth to in today’s stock market

The stock market has no shortage of ASX shares in which we can invest. Some will turn out to be lucrative winners, giving their investors life-changing gains.

Many will prove to be conservative investments, slowly building wealth for their owners over time. But there will also be those ASX shares that prove to be duds and are destined to cause nothing but pain to those investors who buy them.

Today, let’s discuss two ASX shares that I sadly think fall into the latter group.

In today’s stock market, I’d avoid these two ASX shares

Guzman y Gomez Ltd (ASX: GYG)

The Guzman y Gomez float last month generated some of the biggest buzz we’ve seen from an IPO on the Australian market in years. But I think investing in Guzman shares at their current pricing is a mistake. As such, this is one ASX share I’m giving a wide berth this July.

As a rule, I usually avoid ASX share IPOs at all costs. They are hyped-up events that usually produce wild swings in the company in question’s shares. Guzman’s IPO was no different, with investors seeing a huge surge in value, followed by a dramatic slump.

But even if Guzman hadn’t just IPOed, I wouldn’t buy the shares at today’s ASX pricing. The company has a stretched valuation by any metric. Its market capitalisation stands at $2.79 billion right now – more than double that of KFC operator Collins Foods Ltd (ASX: CKF).

Sure, Guzman has grand expansion plans, which probably explains why its shares look expensive based on its current metrics. But if these expansion plans don’t, well… go to plan, investors will probably be in line for a major haircut.

Given how competitive the global fast food space is, I think Guzman’s success is far from a done deal. As such, I am in agreeance with my Fool colleague James that this is one ASX share to stay well away from at current prices.

WAM Capital Ltd (ASX: WAM)

WAM Capital is an ASX share and listed investment company (LIC) that is popular amongst investors who look for large, fully franked dividends. Unfortunately, I think choosing this LIC for that purpose (or any other) would be a mistake today.

Yes, WAM Capital shares do trade on a juicy dividend yield of 10.2% right now. But if you consider that the WAM share price has lost a nasty 32% or so over the past five years, shareholders have barely come out ahead. There’s also this ASX share’s weighty management fee of 1% per annum to take into account.

Moreover, WAM Capital’s hefty dividend doesn’t look sustainable. The company’s latest update informed investors that it currently doesn’t have enough cash to cover its dividend at the current level for the next 12 months.

As such, this is another ASX share that I would avoid at all costs right now.

The post 2 ASX shares I’d give a wide berth to in today’s stock market appeared first on The Motley Fool Australia.

More reading

• 5 reasons I’d throw Guzman y Gomez shares in the bin like a bad burrito
• These 5 ASX dividend shares had the highest yields in FY24
• Top brokers name 3 ASX shares to buy next week
• Why I invested in Guzman Y Gomez (GYG) shares this week for the long-term
• GYG share price ends the week at $28. Is $62 in its future?

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Collins Foods. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.