While the S&P 500 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 is one S&P 500 stock that is positioned to outperform and two that could be in trouble.
Two Stocks to Sell:
Royal Caribbean (RCL)
Market Cap: $52.04 billion
Established in 1968, Royal Caribbean Cruises (NYSE: RCL) is a global cruise vacation company renowned for its innovative and exciting cruise experiences.
Why Are We Hesitant About RCL?
- Scale is a double-edged sword because it limits the company's growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 8.5% for the last five years
- Performance over the past five years shows its incremental sales were less profitable, as its 4% annual earnings per share growth trailed its revenue gains
- Negative returns on capital show management lost money while trying to expand the business
Royal Caribbean’s stock price of $193.75 implies a valuation ratio of 13.5x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than RCL.
Veralto (VLTO)
Market Cap: $22.34 billion
Spun off from Danaher in 2023, Veralto (NYSE: VLTO) provides water analytics and treatment solutions.
Why Does VLTO Worry Us?
- Annual revenue growth of 3.3% over the last two years was below our standards for the industrials sector
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.5%
- Capital intensity has ramped up over the last four years as its free cash flow margin decreased by 2.1 percentage points
At $90 per share, Veralto trades at 24.3x forward price-to-earnings. To fully understand why you should be careful with VLTO, check out our full research report (it’s free).
One Stock to Watch:
Gartner (IT)
Market Cap: $31 billion
With over 2,500 research experts guiding organizations through complex technology landscapes, Gartner (NYSE: IT) provides research, advisory services, and conferences that help executives make better decisions about technology and other business priorities.
Why Do We Watch IT?
- Business is well-positioned no matter the global macroeconomic backdrop as its constant currency revenue growth averaged 7.3% over the past two years
- Strong free cash flow margin of 20.8% enables it to reinvest or return capital consistently, and its recently improved profitability means it has even more resources to invest or distribute
- Improving returns on capital reflect management’s ability to monetize investments
Gartner is trading at $401.80 per share, or 30.9x forward price-to-earnings. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
