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.
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.
FOX (FOXA)
Market Cap: $27.14 billion
Founded in 1915, Fox (NASDAQ: FOXA) is a diversified media company, operating prominent cable news, television broadcasting, and digital media platforms.
Why Do We Avoid FOXA?
- Sizable revenue base leads to growth challenges as its 5.1% annual revenue increases over the last two years fell short of other consumer discretionary companies
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- Projected 11.2 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
FOX is trading at $64.53 per share, or 14x forward P/E. Read our free research report to see why you should think twice about including FOXA in your portfolio.
Fastenal (FAST)
Market Cap: $47.41 billion
Founded in 1967, Fastenal (NASDAQ: FAST) provides industrial and construction supplies, including fasteners, tools, safety products, and many other product categories to businesses globally.
Why Does FAST Worry Us?
- Muted 4.8% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Incremental sales over the last two years were less profitable as its 3.7% annual earnings per share growth lagged its revenue gains
- Free cash flow margin shrank by 1.2 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Fastenal’s stock price of $41.45 implies a valuation ratio of 35.3x forward P/E. To fully understand why you should be careful with FAST, check out our full research report (it’s free for active Edge members).
CooperCompanies (COO)
Market Cap: $13.73 billion
With a history dating back to 1958 and a portfolio spanning two distinct healthcare segments, Cooper Companies (NASDAQ: COO) develops and manufactures medical devices focused on vision care through contact lenses and women's health including fertility products and services.
Why Are We Cautious About COO?
- Annual revenue growth of 7.3% over the last two years was below our standards for the healthcare sector
- Free cash flow margin dropped by 8.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $69.02 per share, CooperCompanies trades at 16x forward P/E. Check out our free in-depth research report to learn more about why COO doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
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