Wall Street has issued downbeat forecasts for the stocks in this article. These predictions are rare - financial institutions typically hesitate to say bad things about a company because it can jeopardize their other revenue-generating business lines like 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.
FedEx (FDX)
Consensus Price Target: $272.29 (1.1% implied return)
Sporting one of the largest air cargo fleets in the world, FedEx (NYSE: FDX) is a global provider of parcel and cargo delivery services.
Why Do We Steer Clear of FDX?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Low free cash flow margin of 2.4% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $269.25 per share, FedEx trades at 14.5x forward P/E. To fully understand why you should be careful with FDX, check out our full research report (it’s free for active Edge members).
Landstar (LSTR)
Consensus Price Target: $131 (-5.7% implied return)
Covering billions of miles throughout North America, Landstar (NASDAQ: LSTR) is a transportation company specializing in freight and last-mile delivery services.
Why Do We Avoid LSTR?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 8.9% annually over the last two years
- Performance over the past five years shows its incremental sales were less profitable as its earnings per share were flat
- Waning returns on capital imply its previous profit engines are losing steam
Landstar’s stock price of $138.92 implies a valuation ratio of 25.8x forward P/E. If you’re considering LSTR for your portfolio, see our FREE research report to learn more.
Gilead Sciences (GILD)
Consensus Price Target: $130.63 (4.3% implied return)
From its groundbreaking work in developing the first single-tablet regimens for HIV treatment, Gilead Sciences (NASDAQ: GILD) develops and markets innovative medicines for life-threatening diseases including HIV, viral hepatitis, COVID-19, and cancer.
Why Does GILD Worry Us?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 3% over the last two years was below our standards for the healthcare sector
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 6.9 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Gilead Sciences is trading at $125.25 per share, or 14.6x forward P/E. Read our free research report to see why you should think twice about including GILD in your portfolio.
High-Quality Stocks for All Market Conditions
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