Why I'd consider dumping high-flying Morrisons for this FTSE 100 faller

Deciding when to part with your winners can be tough. I think FTSE 100 constituent Morrisons(LSE: MRW) is a great example of this.

Under the stewardship of David Potts, the retailer has come a long way since the share price lows of around 142p at the end of 2015 -- recovering almost 80% in value to change hands a smidgen over 250p. Sure, you could find better performers elsewhere but, given the hyper-competitive nature of the market in which Morrisons operates, the fact that it's been able to win over so many investors is still some achievement.

Based on current trading, I wouldn't blame owners for thinking there's more to come. Hailing a "strong start" to its new financial year, the company recently reported a 3.6% rise in like-for-like sales (excluding fuel) over the 13 weeks to 6 May. Comments relating to store openings, a promising start to its deal with McColl's and further indications that net debt will continue to fall over 2018 were also encouraging.  

But therein lies the problem. With stock trading on a valuation of 20 times earnings, I think a lot of these positive developments are already firmly priced in by the market. And that's before the elephant in the room has even been mentioned.

If allowed to go ahead, the proposed merger between Asda and Sainsbury's will leave Morrisons a very distant third in terms of market share. With Aldi and Lidl continuing to snap at its heels and a bid from US giant Amazon remaining unlikely, that's not an enviable position to be in.

Given the uncertainty ahead -- and a really-rather-average dividend yield compared to payouts from some of its FTSE 100 peers (2.7%) -- I'd be tempted to bank some profit and move on.

One for the market bears

Despite the negative sentiment surrounding the company over the last few months, big miner Randgold Resources(LSE: RRS) is one stock I'd be far more likely to buy at the current time.

Last week, the company announced that Q1 gold production had dropped 11% year-on-year to a little under 287,000 ounces, partly due to work stoppages at its Tongon operation in Cote d'Ivoire. At $66.5m, profit was also sharply lower than the $87.1m achieved over the same period in 2017.

On a positive note, the company maintained its annual guidance of between 1.3m and 1.35m ounces.  The aforementioned issues at Tongon appear to have been resolved and the mine is now "committed to clawing back most of the lost production". Randgold also made reference to "new reserve opportunities" in Senegal and that it was "aggressively hunting" for a new project in Africa.

Of course, owning stock in any company with assets in troubled parts of the world (e.g. Democratic Republic of Congo) comes with a fair amount of risk. Nevertheless, I continue to believe that owning one or two gold-focused stocks -- or perhaps an Exchange Traded Fund that invests in a diversified group of such miners -- could be a prudent move as we approach what could turn out to be the endgame of this extended global bull market.

A forecast price-to-earnings ratio of 22 doesn't exactly scream value but this is arguably the price that must be paid for owning a debt free, quality operator like Randgold. A forecast 4% dividend yield takes some of the sting away.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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