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1 of Wall Street’s favorite stocks with promising prospects and 2 we turn down
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.
Unlike the investment banks, we created StockStory to provide independent analysis that helps you determine which companies are truly worth following. Keeping that in mind, here is one stock likely to meet or exceed Wall Street’s lofty expectations and two where analysts may be overlooking some important risks.
Two stocks to sell:
Microchip Technology (MCHP)
Consensus price target: $105.92 (31.8% implied return)
Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.
Why Are We Out on MCHP?
- Sales tumbled by 11.8% annually over the last two years, showing market trends are working against it during this cycle
- Sales were less profitable over the last five years as its earnings per share fell by 9.6% annually, worse than its revenue declines
- Free cash flow margin dropped by 15 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Microchip Technology’s stock price of $80.36 implies a valuation ratio of 20.1x forward P/E. Dive into our free research report to see why there are better opportunities than MCHP.
Collegium Pharmaceutical (COLL)
Consensus price target: $49 (104% implied return)
Pioneering abuse-deterrent technology in a field plagued by addiction concerns, Collegium Pharmaceutical (NASDAQ:COLL) develops and markets specialty medications for treating moderate to severe pain, including abuse-deterrent opioid formulations.
Why Are We Wary of COLL?
- Revenue base of $808.2 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Estimated sales growth of 3.5% for the next 12 months implies demand will slow from its two-year trend
- Efficiency has decreased over the last two years as its adjusted operating margin fell by 7.6 percentage points
Collegium Pharmaceutical is trading at $24.02 per share, or 3.3x forward P/E. Read our free research report to see why you should think twice about including COLL in your portfolio.
One stock to watch:
Hexcel (HXL)
Consensus price target: $99.27 (22.3% implied return)
Founded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE:HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.
Why Should HXL Be on Your Watchlist?
- Projected revenue growth of 10% for the next 12 months indicates demand will rise above its two-year trend
- Share buybacks catapulted its annual earnings per share growth to 103%, which outperformed its revenue gains over the last five years
- Free cash flow margin increased by 5.6 percentage points over the last five years, giving the company more capital to invest or return to shareholders
At $81.19 per share, Hexcel trades at 28.4x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.