Value stocks typically trade at discounts to the broader market, offering patient investors the opportunity to buy businesses when they’re out of favor. The key risk, however, is that these stocks are usually cheap for a reason – five cents for a piece of fruit may seem like a great deal until you find out it’s rotten.

Identifying genuine bargains from value traps is something many investors struggle with, which is why we started StockStory - to help you find the best companies. Keeping that in mind, here are three value stocks with little support and some other investments you should consider instead.

Mattel (MAT)

Forward P/E Ratio: 12.9x

Known for the creation of iconic toys such as Barbie and Hotwheels, Mattel (NASDAQ: MAT) is a global children's entertainment company specializing in the design and production of consumer products.

Why Do We Avoid MAT?

1. Flat sales over the last two years suggest it must innovate and find new ways to grow
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.8%
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Mattel’s stock price of $19.90 implies a valuation ratio of 12.9x forward price-to-earnings. If you’re considering MAT for your portfolio, see our FREE research report to learn more.

Northwest Pipe (NWPX)

Forward P/E Ratio: 12.3x

Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe (NASDAQ: NWPX) is a manufacturer of pipeline systems for water infrastructure.

Why Should You Sell NWPX?

1. Annual revenue growth of 3.7% over the last two years was below our standards for the industrials sector
2. Incremental sales over the last two years were much less profitable as its earnings per share fell by 2.9% annually while its revenue grew
3. Free cash flow margin dropped by 7.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up

At $42.06 per share, Northwest Pipe trades at 12.3x forward price-to-earnings. To fully understand why you should be careful with NWPX, check out our full research report (it’s free).

Jazz Pharmaceuticals (JAZZ)

Forward P/E Ratio: 6.3x

Originally founded in 2003 and now headquartered in Ireland following a 2012 tax inversion merger, Jazz Pharmaceuticals (NASDAQGS:JAZZ) develops and markets medicines for sleep disorders, epilepsy, and cancer, with a focus on treatments for patients with limited therapeutic options.

Why Does JAZZ Fall Short?

1. 5.4% annual revenue growth over the last two years was slower than its healthcare peers
2. Free cash flow margin shrank by 4.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Underwhelming 3.9% return on capital reflects management’s difficulties in finding profitable growth opportunities

Jazz Pharmaceuticals is trading at $139.41 per share, or 6.3x forward price-to-earnings. Check out our free in-depth research report to learn more about why JAZZ doesn’t pass our bar.

Stocks We Like More

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Take advantage of the rebound by checking out our Top 6 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 Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.