The S&P 500 (^GSPC) is often seen as a benchmark for strong businesses, but that doesn’t mean every stock is worth owning. Some companies face significant challenges, whether it’s stagnating growth, heavy debt, or disruptive new competitors.

Picking the right S&P 500 stocks requires more than just buying big names, and that’s where StockStory comes in. Keeping that in mind, here are three S&P 500 stocks to avoid and some better alternatives instead.

A. O. Smith (AOS)

Market Cap: $9.77 billion

Credited with the invention of the glass-lined water heater, A.O. Smith (NYSE: AOS) manufactures water heating and treatment products for various industries.

Why Does AOS Worry Us?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 2.7% annually
3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $68.29 per share, A. O. Smith trades at 17.5x forward P/E. Check out our free in-depth research report to learn more about why AOS doesn’t pass our bar.

Northrop Grumman (NOC)

Market Cap: $90.92 billion

Responsible for the development of the first stealth bomber, Northrop Grumman (NYSE: NOC) specializes in providing aerospace, defense, and security solutions for various industry applications.

Why Should You Dump NOC?

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. Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 5.6 percentage points
3. Eroding returns on capital suggest its historical profit centers are aging

Northrop Grumman is trading at $631.61 per share, or 23.2x forward P/E. Dive into our free research report to see why there are better opportunities than NOC.

Corning (GLW)

Market Cap: $74.69 billion

Supplying windows for some of the United States’s earliest spacecraft, Corning (NYSE: GLW) provides glass and other electronic components for the consumer electronics, telecommunications, automotive, and healthcare industries.

Why Are We Wary of GLW?

1. Sizable revenue base leads to growth challenges as its 4% annual revenue increases over the last two years fell short of other industrials companies
2. Free cash flow margin dropped by 4.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam

Corning’s stock price of $84.81 implies a valuation ratio of 32.6x forward P/E. If you’re considering GLW for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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