The S&P 500 (^GSPC) is home to the biggest and most well-known companies in the market, making it a go-to index for investors seeking stability. But not all large-cap stocks are created equal - some are struggling with slowing growth, declining margins, or increased competition.
Some large-cap stocks are past their peak, and StockStory is here to help you separate the winners from the laggards. Keeping that in mind, here are three S&P 500 stocks that don’t make the cut and some better choices instead.
Walmart (WMT)
Market Cap: $848.9 billion
Known for its large-format Supercenters, Walmart (NYSE: WMT) is a retail pioneer that serves a budget-conscious consumer who is looking for a wide range of products under one roof.
Why Does WMT Fall Short?
- Sizable revenue base leads to growth challenges as its 5% annual revenue increases over the last six years fell short of other consumer retail companies
- Widely-available products (and therefore stiff competition) result in an inferior gross margin of 24.8% that must be offset through higher volumes
- Performance over the past six years shows its incremental sales were much less profitable, as its earnings per share fell by 6.7% annually
Walmart’s stock price of $107.44 implies a valuation ratio of 38.6x forward P/E. Read our free research report to see why you should think twice about including WMT in your portfolio.
Quest (DGX)
Market Cap: $20.89 billion
Processing approximately one-third of the adult U.S. population's lab tests annually, Quest Diagnostics (NYSE: DGX) provides laboratory testing and diagnostic information services to patients, physicians, hospitals, and other healthcare providers across the United States.
Why Is DGX Not Exciting?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 5.3% over the last two years was below our standards for the healthcare sector
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 11.1 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $189.39 per share, Quest trades at 18.7x forward P/E. If you’re considering DGX for your portfolio, see our FREE research report to learn more.
Bristol-Myers Squibb (BMY)
Market Cap: $88.32 billion
With roots dating back to 1887 and a transformative merger in 1989 that gave the company its current name, Bristol-Myers Squibb (NYSE: BMY) discovers, develops, and markets prescription medications for serious diseases including cancer, blood disorders, immunological conditions, and cardiovascular diseases.
Why Are We Wary of BMY?
- Sizable revenue base leads to growth challenges as its 3.7% annual revenue increases over the last two years fell short of other healthcare companies
- Forecasted revenue decline of 4.4% for the upcoming 12 months implies demand will fall off a cliff
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Bristol-Myers Squibb is trading at $43.38 per share, or 6.9x forward P/E. Check out our free in-depth research report to learn more about why BMY doesn’t pass our bar.
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