[jimmylimmy]

From Motley Fool yesterday: 5 Cheap Shares To Avoid

2. Lloyds Banking Group (doh! bought some of these myself)

If RBS was easy to put on my barge-pole list, Lloyds Banking Group (LSE: LLOY) is a much harder call. My colleague David Holding made a good case for the shares being worth twice their current value when they were just a few pence above today's 33p. I'm in full agreement they have a big upside, as a cheap (half book value) geared play on UK economic recovery.

But Lloyds has its own regulatory headaches in the form of the so far unsuccessful sell off of branches. The balance sheet is also stuffed full of bad property loans and exposure to Ireland. With balance sheets this complicated, only the directors know what a bank is worth.

Perversely, it was directors' purchases which made my mind up. There was a flurry of buying after the half-year results. Newly installed CEO Antonio Horta-Osorio doubled his shareholding with a £62,000 purchase.

Now if you're the new chief executive who has cleaned out the stables with big write-offs and given out bullish statements to shareholders, wouldn't you fill your boots? £62,000 is three weeks of Snr Horta-Osorio's basic salary. I'd happily invest in Lloyds if it was a one-way bet, but I'll keep clear until the CEO has more skin in the game.

3. Ocado

Down 35% over 30 days and at a discount of a third to their flotation price, I guess the sponsors Goldman Sachs ought to rate Ocado (LSE: OCDO) shares a bargain: though inconveniently its analysts have recently slashed their profit forecasts.

Management claimed that capacity constraints held back sales in the first year, and a second warehouse is anticipated, by Ocado bulls, to be a platform for the growth priced into the shares. But I remain unconvinced by the business model. Blasted off from a standing start by its exclusive deal to fulfil Waitrose online orders within the M25, the company now competes with Waitrose along and the other supermarket chains.

Ocado's success depends on its pure online service being superior. As the established bricks and mortar competitors develop their online offerings, I can't see them letting it win.