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.
Even among blue-chip stocks, not all investments are created equal - which is why we built StockStory to help you navigate the market. That said, here are three S&P 500 stocks to steer clear of and a few alternatives to consider.
Workday (WDAY)
Market Cap: $49.6 billion
Born from the vision of PeopleSoft founders after Oracle's hostile takeover of their previous company, Workday (NASDAQ: WDAY) provides cloud-based software for financial management, human resources, planning, and analytics to help organizations manage their business operations.
Why Does WDAY Fall Short?
- Underwhelming ARR growth of 13.8% over the last year suggests the company faced challenges in acquiring and retaining long-term customers
- Estimated sales growth of 12.9% for the next 12 months implies demand will slow from its two-year trend
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
At $188.62 per share, Workday trades at 4.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than WDAY.
Keurig Dr Pepper (KDP)
Market Cap: $37.48 billion
Born out of a 2018 merger between Keurig Green Mountain and Dr Pepper Snapple, Keurig Dr Pepper (NASDAQ: KDP) is a consumer staples powerhouse boasting a portfolio of beverages including sodas, coffees, and juices.
Why Do We Think Twice About KDP?
- Annual sales growth of 5.8% over the last three years lagged behind its consumer staples peers as its large revenue base made it difficult to generate incremental demand
- Efficiency has decreased over the last year as its operating margin fell by 5.9 percentage points
- ROIC of 5.8% reflects management’s challenges in identifying attractive investment opportunities
Keurig Dr Pepper is trading at $27.57 per share, or 13x forward P/E. Read our free research report to see why you should think twice about including KDP in your portfolio.
CVS Health (CVS)
Market Cap: $91.4 billion
With over 9,000 retail pharmacy locations serving as neighborhood health destinations across America, CVS Health (NYSE: CVS) operates retail pharmacies, provides pharmacy benefit management services, and offers health insurance through its Aetna subsidiary.
Why Are We Cautious About CVS?
- Sizable revenue base leads to growth challenges as its 6.4% annual revenue increases over the last two years fell short of other healthcare companies
- Earnings per share fell by 2.9% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging
CVS Health’s stock price of $72.50 implies a valuation ratio of 12.2x forward P/E. To fully understand why you should be careful with CVS, check out our full research report (it’s free).
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