3 of Wall Street's Favorite Stocks Walking a Fine Line

The stocks in this article have caught Wall Street’s attention in a big way, with price targets implying returns above 20%. But investors should take these forecasts with a grain of salt because analysts typically say nice things about companies so their firms can win business in other product lines like M&A advisory.

Luckily for you, we at StockStory have no conflicts of interest - our sole job is to help you find genuinely promising companies. That said, here are three stocks where Wall Street’s enthusiasm may be misplaced and some other investments worth exploring instead.

Matson (MATX)

Consensus Price Target: $135.83 (30% implied return)

Founded by a Swedish orphan, Matson (NYSE:MATX) is a provider of ocean transportation and logistics services.

Why Do We Think Twice About MATX?

1. Annual sales declines of 5.3% for the past two years show its products and services struggled to connect with the market during this cycle
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Waning returns on capital imply its previous profit engines are losing steam

Matson’s stock price of $104.50 implies a valuation ratio of 10.5x forward P/E. Dive into our free research report to see why there are better opportunities than MATX.

Select Medical (SEM)

Consensus Price Target: $20.50 (41.3% implied return)

With a nationwide network spanning 46 states and over 2,700 healthcare facilities, Select Medical (NYSE:SEM) operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States.

Why Do We Think SEM Will Underperform?

1. Declining admissions over the past two years suggest it might have to lower prices to accelerate growth
2. Forecasted revenue decline of 11.6% for the upcoming 12 months implies demand will fall even further
3. Free cash flow margin dropped by 13.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up

At $14.51 per share, Select Medical trades at 12.4x forward P/E. Check out our free in-depth research report to learn more about why SEM doesn’t pass our bar.

Omnicom Group (OMC)

Consensus Price Target: $98.61 (38.9% implied return)

With a vast network of creative agencies that helped craft some of the most memorable ad campaigns in history, Omnicom Group (NYSE:OMC) is a strategic holding company that provides advertising, marketing, and communications services to many of the world's largest companies.

Why Are We Cautious About OMC?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Free cash flow margin shrank by 4.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Omnicom Group is trading at $70.99 per share, or 8.1x forward P/E. Read our free research report to see why you should think twice about including OMC in your portfolio.

Stocks We Like More

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