The stocks in this article have caught Wall Street’s attention in a big way, with price targets implying returns above 20%. But investors should take these forecasts with a grain of salt because analysts typically say nice things about companies so their firms can win business in other product lines like M&A advisory.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bullish calls are justified. Keeping that in mind, here is one stock where Wall Street’s excitement appears well-founded and two where analysts may be overlooking some important risks.
Two Stocks to Sell:
Western Digital (WDC)
Consensus Price Target: $57.68 (29% implied return)
Founded in 1970 by a Motorola employee, Western Digital (NASDAQ: WDC) is a leading producer of hard disk drives, SSDs and flash memory.
Why Are We Out on WDC?
- Sales tumbled by 7.9% annually over the last five years, showing market trends are working against its favor during this cycle
- Gross margin of 14.5% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Operating margin of 4.3% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
At $44.70 per share, Western Digital trades at 9.2x forward P/E. Dive into our free research report to see why there are better opportunities than WDC.
Yum China (YUMC)
Consensus Price Target: $59.14 (36.9% implied return)
One of China’s largest restaurant companies, Yum China (NYSE: YUMC) is an independent entity spun off from Yum! Brands in 2016.
Why Are We Wary of YUMC?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 4.2%
- Lacking pricing power results in an inferior gross margin of 20.1% that must be offset by turning more tables
Yum China’s stock price of $43.20 implies a valuation ratio of 16x forward P/E. Check out our free in-depth research report to learn more about why YUMC doesn’t pass our bar.
One Stock to Buy:
Chart (GTLS)
Consensus Price Target: $212.67 (40.6% implied return)
Installing the first bulk Co2 tank for McDonalds’s sodas, Chart (NYSE: GTLS) provides equipment to store and transport gasses.
Why Is GTLS a Good Business?
- Sales pipeline is in good shape as its backlog averaged 41.6% growth over the past two years
- Operating margin expanded by 7.3 percentage points over the last five years as it scaled and became more efficient
- Earnings growth has massively outpaced its peers over the last two years as its EPS has compounded at 35% annually
Chart is trading at $151.25 per share, or 11.7x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
