3 of Wall Street's Favorite Stocks We Steer Clear Of

Wall Street has set ambitious price targets for the stocks in this article. While this suggests attractive upside potential, it’s important to remain skeptical because analysts face institutional pressures that can sometimes lead to overly optimistic forecasts.

At StockStory, we look beyond the headlines with our independent analysis to determine whether these bullish calls are justified. That said, here are three stocks where Wall Street may be overlooking some important risks and some alternatives with better fundamentals.

Energy Recovery (ERII)

Consensus Price Target: $14 (28.4% implied return)

Having saved far more than a trillion gallons of water, Energy Recovery (NASDAQ:ERII) provides energy recovery devices to the water treatment, oil and gas, and chemical processing sectors.

Why Are We Wary of ERII?

1. Sales trends were unexciting over the last two years as its 2.6% annual growth was below the typical industrials company
2. Estimated sales decline of 11.4% for the next 12 months implies a challenging demand environment
3. Eroding returns on capital suggest its historical profit centers are aging

Energy Recovery’s stock price of $10.90 implies a valuation ratio of 16.6x forward P/E. Dive into our free research report to see why there are better opportunities than ERII.

CDW (CDW)

Consensus Price Target: $167.40 (35.3% implied return)

Serving as a crucial bridge between technology manufacturers and end users since 1984, CDW (NASDAQ:CDW) is a multi-brand provider of information technology solutions that helps businesses and public sector organizations select, implement, and manage hardware, software, and IT services.

Why Do We Think Twice About CDW?

1. Annual sales growth of 2.4% over the last two years lagged behind its business services peers as its large revenue base made it difficult to generate incremental demand
2. Anticipated sales growth of 2.8% for the next year implies demand will be shaky
3. Earnings per share were flat over the last two years and fell short of the peer group average

CDW is trading at $123.70 per share, or 11.8x forward P/E. To fully understand why you should be careful with CDW, check out our full research report (it’s free).

Bank of America (BAC)

Consensus Price Target: $62.35 (28.7% implied return)

Tracing its roots back to 1784 and now serving approximately 67 million consumer and small business clients, Bank of America (NYSE:BAC) is a global financial institution that provides banking, investing, asset management, and risk management products and services to individuals, businesses, and governments.

Why Does BAC Worry Us?

1. The company has faced growth challenges as its 6.7% annual net interest income increases over the last five years fell short of other banking companies
2. Net interest margin of 2% is well below other banks, signaling its loans aren’t very profitable
3. Estimated tangible book value per share growth of 6.3% for the next 12 months implies profitability will slow from its two-year trend

At $48.45 per share, Bank of America trades at 1.2x forward P/B. Read our free research report to see why you should think twice about including BAC in your portfolio.

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