When Wall Street turns bearish on a stock, it’s worth paying attention. These calls stand out because analysts rarely issue grim ratings on companies for fear their firms will lose out in other business lines such as M&A advisory.
At StockStory, we look beyond the headlines with our independent analysis to determine whether these bearish calls are justified. That said, here are three stocks facing legitimate challenges and some alternatives worth exploring instead.
Applied Materials (AMAT)
Consensus Price Target: $204.26 (-7.6% implied return)
Founded in 1967 as the first company to develop tools for other businesses in the semiconductor industry, Applied Materials (NASDAQ: AMAT) is the largest provider of semiconductor wafer fabrication equipment.
Why Does AMAT Give Us Pause?
- Estimated sales decline of 1.9% for the next 12 months implies a challenging demand environment
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 2.7 percentage points
Applied Materials’s stock price of $221 implies a valuation ratio of 24.4x forward P/E. To fully understand why you should be careful with AMAT, check out our full research report (it’s free for active Edge members).
Sirius XM (SIRI)
Consensus Price Target: $23.64 (6.7% implied return)
Known for its commercial-free music channels, Sirius XM (NASDAQ: SIRI) is a broadcasting company that provides satellite radio and online radio services across North America.
Why Do We Think SIRI Will Underperform?
- Demand for its offerings was relatively low as its number of core subscribers has underwhelmed
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 36.9% annually while its revenue grew
- Waning returns on capital imply its previous profit engines are losing steam
At $22.15 per share, Sirius XM trades at 7.1x forward P/E. Check out our free in-depth research report to learn more about why SIRI doesn’t pass our bar.
Waters Corporation (WAT)
Consensus Price Target: $348.08 (5.3% implied return)
Founded in 1958 and pioneering innovations in laboratory analysis for over six decades, Waters (NYSE: WAT) develops and manufactures analytical instruments, software, and consumables for liquid chromatography, mass spectrometry, and thermal analysis used in scientific research and quality testing.
Why Are We Cautious About WAT?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Diminishing returns on capital suggest its earlier profit pools are drying up
Waters Corporation is trading at $330.45 per share, or 24.1x forward P/E. Read our free research report to see why you should think twice about including WAT in your portfolio.
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