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 is one S&P 500 stock that could deliver good returns and two that may struggle.
Two Stocks to Sell:
Tapestry (TPR)
Market Cap: $30.65 billion
Originally founded as Coach, Tapestry (NYSE: TPR) is an American fashion conglomerate with a portfolio of luxury brands offering high-quality accessories and fashion products.
Why Should You Sell TPR?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Subpar operating margin of 13.3% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Tapestry is trading at $151.93 per share, or 22x forward P/E. Check out our free in-depth research report to learn more about why TPR doesn’t pass our bar.
Rockwell Automation (ROK)
Market Cap: $44.65 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 Does ROK Give Us Pause?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $397.75 per share, Rockwell Automation trades at 32.7x forward P/E. To fully understand why you should be careful with ROK, check out our full research report (it’s free).
One Stock to Watch:
Vertex Pharmaceuticals (VRTX)
Market Cap: $112.4 billion
Founded in 1989 with a mission to create medicines that treat the underlying causes of disease rather than just symptoms, Vertex Pharmaceuticals (NASDAQ: VRTX) develops and markets transformative medicines for serious diseases, with a focus on cystic fibrosis, sickle cell disease, and pain management.
Why Does VRTX Stand Out?
- 14.1% annual revenue growth over the last five years surpassed the sector average as its offerings resonated with customers
- VRTX is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
Vertex Pharmaceuticals’s stock price of $441 implies a valuation ratio of 23.2x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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