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. That said, here are three S&P 500 stocks to steer clear of and a few alternatives to consider.
Pool (POOL)
Market Cap: $8.54 billion
Founded in 1993 and headquartered in Louisiana, Pool (NASDAQ: POOL) is one of the largest wholesale distributors of swimming pool supplies, equipment, and related leisure products.
Why Are We Out on POOL?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Free cash flow margin is expected to increase by 1.3 percentage points next year, suggesting the company will have more capital to invest or return to shareholders
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $229.65 per share, Pool trades at 20.3x forward P/E. Check out our free in-depth research report to learn more about why POOL doesn’t pass our bar.
Hilton (HLT)
Market Cap: $67.95 billion
Founded in 1919, Hilton Worldwide (NYSE: HLT) is a global hospitality company with a portfolio of hotel brands.
Why Should You Sell HLT?
- Revenue per room has disappointed over the past two years due to weaker trends in its daily rates and occupancy levels
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 2.6 percentage points
- ROIC of 24.1% reflects management’s challenges in identifying attractive investment opportunities
Hilton’s stock price of $292.37 implies a valuation ratio of 33.2x forward P/E. To fully understand why you should be careful with HLT, check out our full research report (it’s free for active Edge members).
Aflac (AFL)
Market Cap: $57.63 billion
Known for its iconic duck mascot that has quacked "Aflac!" in commercials since 2000, Aflac (NYSE: AFL) provides supplemental health and life insurance policies that pay cash benefits directly to policyholders for expenses not covered by their primary insurance.
Why Is AFL Not Exciting?
- Net premiums earned contracted by 6.2% annually over the last five years, showing unfavorable market dynamics this cycle
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 9.4% annually
- Capital generation is forecasted to stall as its estimated book value per share for the next 12 months is flat
Aflac is trading at $109.96 per share, or 2x forward P/B. Read our free research report to see why you should think twice about including AFL in your portfolio.
High-Quality Stocks for All Market Conditions
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