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 to avoid and some better alternatives instead.
Illinois Tool Works (ITW)
Market Cap: $85.01 billion
Founded by Byron Smith, an investor who held over 100 patents, Illinois Tool Works (NYSE: ITW) manufactures engineered components and specialized equipment for numerous industries.
Why Are We Hesitant About ITW?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Projected sales growth of 3.2% for the next 12 months suggests sluggish demand
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 3.8% annually
At $293.82 per share, Illinois Tool Works trades at 26.3x forward P/E. If you’re considering ITW for your portfolio, see our FREE research report to learn more.
Thermo Fisher (TMO)
Market Cap: $192 billion
With over 14,000 sales personnel and a portfolio spanning more than 2,500 technology manufacturers, Thermo Fisher Scientific (NYSE: TMO) provides scientific equipment, reagents, consumables, software, and laboratory services to pharmaceutical, biotech, academic, and healthcare customers worldwide.
Why Are We Cautious About TMO?
- Annual sales growth of 2% over the last two years lagged behind its healthcare peers as its large revenue base made it difficult to generate incremental demand
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 8.3 percentage points
Thermo Fisher’s stock price of $508 implies a valuation ratio of 20.8x forward P/E. Check out our free in-depth research report to learn more about why TMO doesn’t pass our bar.
Citizens Financial Group (CFG)
Market Cap: $27.75 billion
Tracing its roots back to 1828 as a community-focused institution, Citizens Financial Group (NYSE: CFG) is a regional bank that provides retail and commercial banking services to individuals, small businesses, and large corporations across 14 states.
Why Do We Think CFG Will Underperform?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Muted 5% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Flat earnings per share over the last two years lagged its peers
Citizens Financial Group is trading at $65.15 per share, or 1.1x forward P/B. Read our free research report to see why you should think twice about including CFG in your portfolio.
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