While the S&P 500 (^GSPC) includes industry leaders, not every stock in the index is a winner. Some companies are past their prime, weighed down by poor execution, weak financials, or structural headwinds.
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 that don’t make the cut and some better choices instead.
Adobe (ADBE)
Market Cap: $108 billion
Originally named after Adobe Creek that ran behind co-founder John Warnock's house, Adobe (NASDAQ: ADBE) develops software products used for digital content creation, document management, and marketing solutions across desktop, mobile, and cloud platforms.
Why Are We Hesitant About ADBE?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 12.6% underwhelmed
- Projected sales growth of 9.4% for the next 12 months suggests sluggish demand
- Operating margin improvement of 5.3 percentage points over the last year demonstrates its ability to scale efficiently
Adobe’s stock price of $263.62 implies a valuation ratio of 4.2x forward price-to-sales. To fully understand why you should be careful with ADBE, check out our full research report (it’s free).
McCormick (MKC)
Market Cap: $18.8 billion
The classic red Heinz ketchup bottle’s competitor, McCormick (NYSE: MKC) sells food-flavoring products like condiments, spices, and seasoning mixes.
Why Is MKC Not Exciting?
- Sales trends were unexciting over the last three years as its 2.5% annual growth was below the typical consumer staples company
- ROIC of 8.9% reflects management’s challenges in identifying attractive investment opportunities
At $70.02 per share, McCormick trades at 22.4x forward P/E. Dive into our free research report to see why there are better opportunities than MKC.
BNY (BK)
Market Cap: $82.24 billion
Tracing its roots back to 1784 when it was founded by Alexander Hamilton, BNY (NYSE: BK) is a global financial institution that provides asset servicing, wealth management, and investment services to institutions, corporations, and high-net-worth individuals.
Why Does BK Fall Short?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 4.7% over the last five years was below our standards for the financials sector
- Scale is a double-edged sword because it limits the firm’s capital growth potential compared to its smaller competitors, as reflected in its below-average annual tangible book value per share increases of 6.3% for the last five years
- Below-average return on equity indicates management struggled to find compelling investment opportunities
BNY is trading at $119.85 per share, or 14.2x forward P/E. Check out our free in-depth research report to learn more about why BK doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
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