While the S&P 500 (^GSPC) includes industry leaders, not every stock in the index is a winner. Some companies are past their prime, weighed down by poor execution, weak financials, or structural headwinds.
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 that don’t make the cut and some better choices instead.
Ralph Lauren (RL)
Market Cap: $19.58 billion
Originally founded as a necktie company, Ralph Lauren (NYSE: RL) is an iconic American fashion brand known for its classic and sophisticated style.
Why Are We Wary of RL?
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Anticipated sales growth of 5.4% for the next year implies demand will be shaky
- Projected 4.4 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
At $326.62 per share, Ralph Lauren trades at 21.3x forward P/E. Check out our free in-depth research report to learn more about why RL doesn’t pass our bar.
Rockwell Automation (ROK)
Market Cap: $39.13 billion
One of the first companies to address industrial automation, Rockwell Automation (NYSE: ROK) sells products that help customers extract more efficiency from their machinery.
Why Do We Pass on ROK?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Eroding returns on capital suggest its historical profit centers are aging
Rockwell Automation is trading at $345.96 per share, or 31.1x forward P/E. If you’re considering ROK for your portfolio, see our FREE research report to learn more.
Waters Corporation (WAT)
Market Cap: $19.93 billion
Founded in 1958 and pioneering innovations in laboratory analysis for over six decades, Waters (NYSE: WAT) develops and manufactures analytical instruments, software, and consumables for liquid chromatography, mass spectrometry, and thermal analysis used in scientific research and quality testing.
Why Does WAT Give Us Pause?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Waters Corporation’s stock price of $335.41 implies a valuation ratio of 24.5x forward P/E. Read our free research report to see why you should think twice about including WAT in your portfolio.
High-Quality Stocks for All Market Conditions
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