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. That said, here are three S&P 500 stocks that don’t make the cut and some better choices instead.
McCormick (MKC)
Market Cap: $18.28 billion
The classic red Heinz ketchup bottle’s competitor, McCormick (NYSE: MKC) sells food-flavoring products like condiments, spices, and seasoning mixes.
Why Do We Think Twice About MKC?
- Lackluster 2.1% annual revenue growth over the last three years indicates the company is losing ground to competitors
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- 1.9 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
McCormick is trading at $68.11 per share, or 21.9x forward P/E. Check out our free in-depth research report to learn more about why MKC doesn’t pass our bar.
Emerson Electric (EMR)
Market Cap: $74.63 billion
Founded in 1890, Emerson Electric (NYSE: EMR) is a multinational technology and engineering company providing solutions in the industrial, commercial, and residential markets.
Why Does EMR Worry Us?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 1.4% over the last five years was below our standards for the industrials sector
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 3 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
Emerson Electric’s stock price of $133.01 implies a valuation ratio of 20.9x forward P/E. Dive into our free research report to see why there are better opportunities than EMR.
Delta (DAL)
Market Cap: $45.02 billion
One of the ‘Big Four’ airlines in the US, Delta Air Lines (NYSE: DAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.
Why Do We Steer Clear of DAL?
- Performance surrounding its revenue passenger miles has lagged its peers
- Free cash flow margin is expected to remain in place over the coming year
- Returns on capital are increasing as management makes relatively better investment decisions
At $69.48 per share, Delta trades at 10.3x forward P/E. To fully understand why you should be careful with DAL, check out our full research report (it’s free for active Edge members).
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