3 S&P 500 Stocks That Fall Short

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?

1. 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
2. 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
3. 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?

1. Revenue per room has disappointed over the past two years due to weaker trends in its daily rates and occupancy levels
2. 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
3. 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?

1. Net premiums earned contracted by 6.2% annually over the last five years, showing unfavorable market dynamics this cycle
2. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 9.4% annually
3. 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.

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