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.
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 is one S&P 500 stock that is positioned to outperform and two that could be in trouble.
Two Stocks to Sell:
Domino's (DPZ)
Market Cap: $13.7 billion
Founded by two brothers in Michigan, Domino’s (NYSE: DPZ) is a globally recognized pizza chain known for its creative marketing and fast delivery.
Why Are We Cautious About DPZ?
- Sales trends were unexciting over the last six years as its 5.3% annual growth was below the typical restaurant company
- Projected sales growth of 5.4% for the next 12 months suggests sluggish demand
At $406.34 per share, Domino's trades at 21.7x forward P/E. Dive into our free research report to see why there are better opportunities than DPZ.
Union Pacific (UNP)
Market Cap: $133.2 billion
Part of the transcontinental railroad project, Union Pacific (NYSE: UNP) is a freight transportation company that operates a major railroad network.
Why Do We Pass on UNP?
- Underwhelming unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2%
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.3 percentage points
Union Pacific’s stock price of $226.42 implies a valuation ratio of 19.1x forward P/E. If you’re considering UNP for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Alphabet (GOOGL)
Market Cap: $3.89 trillion
Started by Stanford students Larry Page and Sergey Brin in a Menlo Park garage, Alphabet (NASDAQ: GOOGL) is the parent company of the eponymous Google Search engine, Google Cloud Platform, and YouTube.
Why Is GOOGL a Top Pick?
- Alphabet’s dominant Google Search sits on the pantheon of the best businesses ever. This is reflected in its robust long-term revenue growth and elite operating margin.
- The company’s profit margins have become even higher over time, speaking to its scale advantages and operating efficiency not only in its core Search business but also in Google Cloud Platform and YouTube.
- Revenue growth and increasing operating margins are the key ingredients for strong EPS growth. Google has these, and when also factoring in its share repurchases, you can see why EPS has exploded over the long term.
Alphabet is trading at $322.32 per share, or 29.5x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
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