The S&P 500 (^GSPC) is often seen as a benchmark for strong businesses, but that doesn’t mean every stock is worth owning. Some companies face significant challenges, whether it’s stagnating growth, heavy debt, or disruptive new competitors.
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.
NXP Semiconductors (NXPI)
Market Cap: $57.82 billion
Spun off from Dutch electronics giant Philips in 2006, NXP Semiconductors (NASDAQ: NXPI) is a designer and manufacturer of chips used in autos, industrial manufacturing, mobile devices, and communications infrastructure.
Why Does NXPI Worry Us?
- Sales tumbled by 4.4% annually over the last two years, showing market trends are working against its favor during this cycle
- Projected sales growth of 8.9% for the next 12 months suggests sluggish demand
- 10.1 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
NXP Semiconductors’s stock price of $228.35 implies a valuation ratio of 17.7x forward P/E. Dive into our free research report to see why there are better opportunities than NXPI.
Deckers (DECK)
Market Cap: $15.19 billion
Established in 1973, Deckers (NYSE:DECK) is a footwear and apparel conglomerate with a portfolio of lifestyle and performance brands.
Why Do We Avoid DECK?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Operating margin of 23.4% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Free cash flow margin is forecasted to shrink by 1.5 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Deckers is trading at $103.73 per share, or 16.4x forward P/E. Check out our free in-depth research report to learn more about why DECK doesn’t pass our bar.
PACCAR (PCAR)
Market Cap: $58.91 billion
Founded more than a century ago, PACCAR (NASDAQ:PCAR) designs and manufactures commercial trucks of various weights and sizes for the commercial trucking industry.
Why Are We Cautious About PCAR?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Forecasted revenue decline of 6% for the upcoming 12 months implies demand will fall even further
- Earnings per share have dipped by 19.6% annually over the past two years, which is concerning because stock prices follow EPS over the long term
At $112.16 per share, PACCAR trades at 22.6x forward P/E. To fully understand why you should be careful with PCAR, check out our full research report (it’s free for active Edge members).
High-Quality Stocks for All Market Conditions
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