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.

Accurately determining a company’s long-term prospects isn’t easy, especially when sentiment is weak. That’s where StockStory comes in - to help you find attractive investment candidates backed by unbiased research. Keeping that in mind, here is one stock poised to prove Wall Street wrong and two where the skepticism is well-placed.

Two Stocks to Sell:

Mohawk Industries (MHK)

Consensus Price Target: $127.84 (10.2% implied return)

Established in 1878, Mohawk Industries (NYSE: MHK) is a leading producer of floor-covering products for both residential and commercial applications.

Why Do We Pass on MHK?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Mohawk Industries’s stock price of $116 implies a valuation ratio of 11.5x forward P/E. Dive into our free research report to see why there are better opportunities than MHK.

Frontdoor (FTDR)

Consensus Price Target: $55.50 (-5.4% implied return)

Established in 2018 as a spin-off from ServiceMaster Global Holdings, Frontdoor (NASDAQ: FTDR) is a provider of home warranty and service plans.

Why Does FTDR Fall Short?

1. Demand for its offerings was relatively low as its number of home service plans has underwhelmed
2. Projected 2.4 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Frontdoor is trading at $58.69 per share, or 19.2x forward P/E. Read our free research report to see why you should think twice about including FTDR in your portfolio.

One Stock to Buy:

KLA Corporation (KLAC)

Consensus Price Target: $857.12 (-4.1% implied return)

Formed by the 1997 merger of the two leading semiconductor yield management companies, KLA Corporation (NASDAQ: KLAC) is the leading supplier of equipment used to measure and inspect semiconductor chips.

Why Is KLAC a Top Pick?

1. Annual revenue growth of 15.6% over the past five years was outstanding, reflecting market share gains this cycle
2. Healthy operating margin of 35.9% shows it’s a well-run company with efficient processes, and its operating leverage amplified its profits over the last five years
3. KLAC is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders

At $894 per share, KLA Corporation trades at 28.7x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

High-Quality Stocks for All Market Conditions

Donald Trump’s April 2024 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

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