3 S&P 500 Stocks We're Skeptical Of

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.

Ralph Lauren (RL)

Market Cap: $19.58 billion

Originally founded as a necktie company, Ralph Lauren (NYSE:RL) is an iconic American fashion brand known for its classic and sophisticated style.

Why Are We Wary of RL?

1. Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
2. Anticipated sales growth of 5.4% for the next year implies demand will be shaky
3. Projected 4.4 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position

At $326.62 per share, Ralph Lauren trades at 21.3x forward P/E. Check out our free in-depth research report to learn more about why RL doesn’t pass our bar.

Rockwell Automation (ROK)

Market Cap: $39.13 billion

One of the first companies to address industrial automation, Rockwell Automation (NYSE:ROK) sells products that help customers extract more efficiency from their machinery.

Why Do We Pass on ROK?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
3. Eroding returns on capital suggest its historical profit centers are aging

Rockwell Automation is trading at $345.96 per share, or 31.1x forward P/E. If you’re considering ROK for your portfolio, see our FREE research report to learn more.

Waters Corporation (WAT)

Market Cap: $19.93 billion

Founded in 1958 and pioneering innovations in laboratory analysis for over six decades, Waters (NYSE:WAT) develops and manufactures analytical instruments, software, and consumables for liquid chromatography, mass spectrometry, and thermal analysis used in scientific research and quality testing.

Why Does WAT Give Us Pause?

1. Sales were flat over the last two years, indicating it’s failed to expand this cycle
2. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Waters Corporation’s stock price of $335.41 implies a valuation ratio of 24.5x forward P/E. Read our free research report to see why you should think twice about including WAT in your portfolio.

High-Quality Stocks for All Market Conditions

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