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 are three stocks where the skepticism is well-placed and some better opportunities to consider.
3M (MMM)
Consensus Price Target: $174.31 (5.6% implied return)
Producers of the first asthma inhaler, 3M Company (NYSE: MMM) is a global conglomerate known for products in industries like healthcare, safety, electronics, and consumer goods.
Why Do We Pass on MMM?
- 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
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Earnings per share have contracted by 1.5% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3M’s stock price of $165 implies a valuation ratio of 19.6x forward P/E. Check out our free in-depth research report to learn more about why MMM doesn’t pass our bar.
IBM (IBM)
Consensus Price Target: $287.09 (-6.7% implied return)
With a corporate history spanning over a century and once known for its iconic mainframe computers, IBM (NYSE: IBM) provides hybrid cloud computing platforms, AI solutions, consulting services, and enterprise infrastructure to help businesses modernize their operations.
Why Are We Cautious About IBM?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 1.3% over the last five years was below our standards for the business services sector
- Earnings per share lagged its peers over the last five years as they only grew by 4.2% annually
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $307.60 per share, IBM trades at 25.6x forward P/E. Dive into our free research report to see why there are better opportunities than IBM.
Westamerica Bancorporation (WABC)
Consensus Price Target: $53 (11% implied return)
Founded in 1884 and serving communities from Mendocino County in the north to Kern County in the south, Westamerica Bancorporation (NASDAQ: WABC) provides banking services to individuals and small businesses throughout Northern and Central California.
Why Are We Hesitant About WABC?
- Muted 6.2% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Net interest income is projected to tank by 11% over the next 12 months as demand evaporates
- Concessions to defend its market share have ramped up over the last two years as its net interest margin decreased by 46.7 basis points (100 basis points = 1 percentage point)
Westamerica Bancorporation is trading at $47.75 per share, or 1.3x forward P/B. If you’re considering WABC for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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