3 S&P 500 Stocks with Mounting Challenges

The S&P 500 (^GSPC) is often seen as a benchmark for strong businesses, but that doesn’t mean every stock is worth owning. Some companies face significant challenges, whether it’s stagnating growth, heavy debt, or disruptive new competitors.

Some large-cap stocks are past their peak, and StockStory is here to help you separate the winners from the laggards. That said, here are three S&P 500 stocks that don’t make the cut and some better choices instead.

EPAM (EPAM)

Market Cap: $9.01 billion

Founded in 1993 during the early days of offshore software development, EPAM Systems (NYSE:EPAM) provides digital engineering, cloud, and AI transformation services to help global enterprises and startups modernize their technology systems and create digital products.

Why Does EPAM Give Us Pause?

1. Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
2. Free cash flow margin dropped by 6.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Eroding returns on capital suggest its historical profit centers are aging

EPAM’s stock price of $160.10 implies a valuation ratio of 14.1x forward price-to-earnings. If you’re considering EPAM for your portfolio, see our FREE research report to learn more.

Hewlett Packard Enterprise (HPE)

Market Cap: $21.33 billion

Born from the 2015 split of the iconic Silicon Valley pioneer Hewlett-Packard, Hewlett Packard Enterprise (NYSE:HPE) provides edge-to-cloud technology solutions that help businesses capture, analyze, and act upon their data across hybrid IT environments.

Why Is HPE Not Exciting?

1. Sizable revenue base leads to growth challenges as its 1.8% annual revenue increases over the last five years fell short of other business services companies
2. Earnings per share fell by 3% annually over the last two years while its revenue grew, partly because it diluted shareholders
3. ROIC of 2.9% reflects management’s challenges in identifying attractive investment opportunities

At $16.25 per share, Hewlett Packard Enterprise trades at 7.5x forward price-to-earnings. Read our free research report to see why you should think twice about including HPE in your portfolio.

Waters Corporation (WAT)

Market Cap: $20.1 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 Do We Think Twice About WAT?

1. 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
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.2 percentage points
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Waters Corporation is trading at $337.89 per share, or 26.3x forward price-to-earnings. To fully understand why you should be careful with WAT, check out our full research report (it’s free).

Stocks We Like More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.