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.
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 that don’t make the cut and some better choices instead.
Adobe (ADBE)
Market Cap: $101.3 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?
- ARR growth averaged a weak 13% over the last year, suggesting that competition is pulling some attention away from its software
- Estimated sales growth of 8.5% for the next 12 months implies demand will slow from its two-year trend
- Operating margin didn’t move over the last year, showing it couldn’t increase its efficiency
Adobe is trading at $250.67 per share, or 3.8x forward price-to-sales. Read our free research report to see why you should think twice about including ADBE in your portfolio.
CSX (CSX)
Market Cap: $83.78 billion
Established as part of the Chessie System and Seaboard Coast Line Industries merger, CSX (NASDAQ: CSX) is a transportation company specializing in freight rail services.
Why Do We Steer Clear of CSX?
- Flat unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Sales were less profitable over the last two years as its earnings per share fell by 3.4% annually, worse than its revenue declines
- Free cash flow margin dropped by 15.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $44.96 per share, CSX trades at 23.2x forward P/E. Check out our free in-depth research report to learn more about why CSX doesn’t pass our bar.
Oracle (ORCL)
Market Cap: $494.2 billion
Starting as a database company in 1977 and now powering mission-critical systems across the globe, Oracle (NYSE: ORCL) provides enterprise software and hardware products and services that help businesses manage their information technology needs.
Why Does ORCL Fall Short?
- 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 10.1% for the last five years
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Oracle’s stock price of $171.60 implies a valuation ratio of 5.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ORCL.
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