3 Unpopular Stocks We're Skeptical Of

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.

Whatever the consensus opinion may be, our team at StockStory cuts through the noise by conducting independent analysis to determine a company’s long-term prospects. Keeping that in mind, here are three stocks where the skepticism is well-placed and some better opportunities to consider.

Twilio (TWLO)

Consensus Price Target: $133.19 (10.3% implied return)

Founded in 2008 by Jeff Lawson, a former engineer at Amazon, Twilio (NYSE:TWLO) is a software as a service platform that makes it really easy for software developers to use text messaging, voice calls and other forms of communication in their apps.

Why Do We Think Twice About TWLO?

1. Average billings growth of 9.4% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
2. Estimated sales growth of 7.2% for the next 12 months implies demand will slow from its three-year trend
3. Gross margin of 50.6% reflects its high servicing costs

At $120.80 per share, Twilio trades at 4x forward price-to-sales. If you’re considering TWLO for your portfolio, see our FREE research report to learn more.

Illinois Tool Works (ITW)

Consensus Price Target: $257.97 (2.2% implied return)

Founded by Byron Smith, an investor who held over 100 patents, Illinois Tool Works (NYSE:ITW) manufactures engineered components and specialized equipment for numerous industries.

Why Are We Wary of ITW?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Anticipated sales growth of 4% for the next year implies demand will be shaky
3. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 6.2% annually

Illinois Tool Works is trading at $252.31 per share, or 23.5x forward P/E. Check out our free in-depth research report to learn more about why ITW doesn’t pass our bar.

International Paper (IP)

Consensus Price Target: $54.33 (17.1% implied return)

Established in 1898, International Paper (NYSE:IP) produces containerboard, pulp, paper, and materials used in packaging and printing applications.

Why Do We Steer Clear of IP?

1. Sales were flat over the last five years, indicating it’s failed to expand this cycle
2. Free cash flow margin shrank by 11.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

International Paper’s stock price of $46.41 implies a valuation ratio of 15.5x forward P/E. Read our free research report to see why you should think twice about including IP in your portfolio.

High-Quality Stocks for All Market Conditions

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