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. Keeping that in mind, here are three S&P 500 stocks to avoid and some better alternatives instead.
Brown-Forman (BF.B)
Market Cap: $12.58 billion
Best known for its Jack Daniel’s whiskey, Brown-Forman (NYSE: BF.B) is an alcoholic beverage company with a broad portfolio of brands in wines and spirits.
Why Does BF.B Worry Us?
- Annual revenue declines of 2.4% over the last three years indicate problems with its market positioning
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Earnings per share have dipped by 2.1% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Brown-Forman’s stock price of $27.33 implies a valuation ratio of 16.2x forward P/E. Check out our free in-depth research report to learn more about why BF.B doesn’t pass our bar.
FOX (FOXA)
Market Cap: $27.2 billion
Founded in 1915, Fox (NASDAQ: FOXA) is a diversified media company, operating prominent cable news, television broadcasting, and digital media platforms.
Why Are We Bearish on FOXA?
- The company has faced growth challenges as its 5.8% annual revenue increases over the last five years fell short of other consumer discretionary companies
- Poor free cash flow margin of 13.3% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Returns on capital are growing as management invests in more worthwhile ventures
FOX is trading at $67.75 per share, or 11.3x forward P/E. Read our free research report to see why you should think twice about including FOXA in your portfolio.
Carnival (CCL)
Market Cap: $33.91 billion
Boasting outrageous amenities like a planetarium on board its ships, Carnival (NYSE: CCL) is one of the world's largest leisure travel companies and a prominent player in the cruise industry.
Why Do We Think CCL Will Underperform?
- Number of passenger cruise days has disappointed over the past two years, indicating weak demand for its offerings
- Free cash flow margin is not anticipated to grow over the next year
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $24.88 per share, Carnival trades at 10.7x forward P/E. To fully understand why you should be careful with CCL, check out our full research report (it’s free).
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