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 is one S&P 500 stock that could deliver good returns and two that could be in trouble.
Two Stocks to Sell:
Kimberly-Clark (KMB)
Market Cap: $32.47 billion
Originally founded as a Wisconsin paper mill in 1872, Kimberly-Clark (NYSE: KMB) is now a household products powerhouse known for personal care and tissue products.
Why Does KMB Give Us Pause?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.1%
- 5 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
At $98.06 per share, Kimberly-Clark trades at 13.2x forward P/E. Read our free research report to see why you should think twice about including KMB in your portfolio.
Danaher (DHR)
Market Cap: $131.7 billion
Born from a real estate investment trust that transformed into a manufacturing powerhouse, Danaher (NYSE: DHR) is a global science and technology company that provides specialized equipment, software, and services for biotechnology, life sciences, and diagnostics.
Why Are We Cautious About DHR?
- 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
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 10.4 percentage points
- Free cash flow margin dropped by 7.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Danaher’s stock price of $187.50 implies a valuation ratio of 23.2x forward P/E. To fully understand why you should be careful with DHR, check out our full research report (it’s free).
One Stock to Buy:
Nvidia (NVDA)
Market Cap: $4.45 trillion
Founded in 1993 by Jensen Huang and two former Sun Microsystems engineers, Nvidia (NASDAQ: NVDA) is a leading fabless designer of chips used in gaming, PCs, data centers, automotive, and a variety of end markets.
Why Is NVDA a Top Pick?
- Impressive 88.3% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Share repurchases over the last five years enabled its annual earnings per share growth of 80.5% to outpace its revenue gains
- Robust free cash flow margin of 45.5% gives it many options for capital deployment, and its rising cash conversion increases its margin of safety
Nvidia is trading at $182.91 per share, or 22.4x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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