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 to steer clear of and a few alternatives to consider.
Market Cap: $34.94 billion
Originally founded as a part of Microsoft, Expedia (NASDAQ:EXPE) is one of the world’s leading online travel agencies.
Why Are We Hesitant About EXPE?
-
Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 8.3% over the last three years was below our standards for the consumer internet sector
-
Decision to emphasize platform growth over monetization has contributed to 1.7% annual declines in its average revenue per booking
-
Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
At $286.20 per share, Expedia trades at 10.2x forward EV/EBITDA. If you’re considering EXPE for your portfolio, see our FREE research report to learn more.
Market Cap: $58.62 billion
Owning the largest rental fleet in the world, United Rentals (NYSE:URI) provides equipment rental and related services to construction, industrial, and infrastructure industries.
Why Do We Think Twice About URI?
-
Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
-
Earnings growth underperformed the sector average over the last two years as its EPS grew by just 4.1% annually
-
Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.6 percentage points
United Rentals’s stock price of $921.24 implies a valuation ratio of 20.2x forward P/E. Read our free research report to see why you should think twice about including URI in your portfolio, it’s free.
Market Cap: $285.7 billion
With a corporate history spanning over a century and once known for its iconic mainframe computers, IBM (NYSE:IBM) provides hybrid cloud computing platforms, AI solutions, consulting services, and enterprise infrastructure to help businesses modernize their operations.
Why Is IBM Not Exciting?
-
Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 1.3% for the last five years
-
Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 4.2% annually