3 Unpopular Stocks We Think Twice About

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.

At StockStory, we look beyond the headlines with our independent analysis to determine whether these bearish calls are justified. Keeping that in mind, here are three stocks where the skepticism is well-placed and some better opportunities to consider.

Applied Industrial (AIT)

Consensus Price Target: $280.71 (2.5% implied return)

Formerly called The Ohio Ball Bearing Company, Applied Industrial (NYSE:AIT) distributes industrial products–everything from power tools to industrial valves–and services to a wide variety of industries.

Why Are We Cautious About AIT?

1. 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
2. Anticipated sales growth of 4.9% for the next year implies demand will be shaky
3. Gross margin of 29.4% reflects its high production costs

At $274 per share, Applied Industrial trades at 25.6x forward P/E. Dive into our free research report to see why there are better opportunities than AIT.

Cummins (CMI)

Consensus Price Target: $359.56 (-1.1% implied return)

With more than half of the heavy-duty truck market using its engines at one point, Cummins (NYSE:CMI) offers engines and power systems.

Why Does CMI Give Us Pause?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 6% over the last two years was below our standards for the industrials sector
2. Free cash flow margin shrank by 10.2 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

Cummins is trading at $363.41 per share, or 12.5x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including CMI in your portfolio.

Landstar (LSTR)

Consensus Price Target: $141.21 (6% 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 Think LSTR Will Underperform?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 12.7% annually over the last two years
2. Earnings per share have dipped by 27.9% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. Eroding returns on capital suggest its historical profit centers are aging

Landstar’s stock price of $133.27 implies a valuation ratio of 24x forward P/E. If you’re considering LSTR for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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