The S&P 500 is home to the biggest and most well-known companies in the market, making it a go-to index for investors seeking stability. But not all large-cap stocks are created equal - some are struggling with slowing growth, declining margins, or increased competition.
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 that don’t make the cut and some better choices instead.
Salesforce (CRM)
Market Cap: $257.9 billion
Launched in 1999 from a rented one-bedroom apartment in San Francisco by Marc Benioff and his three co-founders, Salesforce (NYSE: CRM) is a software-as-a-service platform that helps companies access, manage, and share sales information such as leads.
Why Are We Cautious About CRM?
- Sizable revenue base leads to growth challenges as its 12.7% annual revenue increases over the last three years fell short of other software companies
- Average billings growth of 8.1% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 7.7% for the next 12 months implies demand will slow from its three-year trend
Salesforce’s stock price of $267.39 implies a valuation ratio of 6.4x forward price-to-sales. To fully understand why you should be careful with CRM, check out our full research report (it’s free).
Take-Two (TTWO)
Market Cap: $36.58 billion
Best known for its Grand Theft Auto and NBA 2K franchises, Take Two (NASDAQ: TTWO) is one of the world’s largest video game publishers.
Why Are We Hesitant About TTWO?
- EBITDA margin declined by 13.1 percentage points over the last few years as it scaled
- Incremental sales over the last three years were much less profitable as its earnings per share fell by 88.8% annually while its revenue grew
- Cash burn has widened over the last few years, making us question whether it can reliably generate shareholder value
At $207 per share, Take-Two trades at 18.6x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including TTWO in your portfolio.
Deere (DE)
Market Cap: $127.4 billion
Revolutionizing agriculture with the first self-polishing cast-steel plow in the 1800s, Deere (NYSE: DE) manufactures and distributes advanced agricultural, construction, forestry, and turf care equipment.
Why Are We Out on DE?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 10.1% annually over the last two years
- Free cash flow margin dropped by 5.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Deere is trading at $468 per share, or 23.2x forward price-to-earnings. Check out our free in-depth research report to learn more about why DE doesn’t pass our bar.
Stocks We Like More
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.
Put yourself in the driver’s seat by checking out our Top 9 Market-Beating Stocks. 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.
