The S&P 500 (^GSPC) 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.
Even among blue-chip stocks, not all investments are created equal - which is why we built StockStory to help you navigate the market. Keeping that in mind, here are three S&P 500 stocks to avoid and some better alternatives instead.
Akamai (AKAM)
Market Cap: $13.27 billion
With a massive distributed network spanning 4,100+ points of presence in nearly 130 countries, Akamai Technologies (NASDAQ:AKAM) provides a global distributed cloud platform that helps businesses deliver, secure, and optimize their digital experiences online.
Why Do We Avoid AKAM?
- Average billings growth of 5.7% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Bad unit economics and steep infrastructure costs are reflected in its gross margin of 57.5%, one of the worst among software companies
- Free cash flow margin is forecasted to shrink by 95 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Akamai is trading at $91.63 per share, or 3x forward price-to-sales. To fully understand why you should be careful with AKAM, check out our full research report (it’s free).
Comcast (CMCSA)
Market Cap: $77.25 billion
Formerly known as American Cable Systems, Comcast (NASDAQ:CMCSA) is a multinational telecommunications company offering a wide range of services.
Why Do We Pass on CMCSA?
- Demand for its offerings was relatively low as its number of domestic broadband customers has underwhelmed
- Projected 3.7 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $21.73 per share, Comcast trades at 6x forward P/E. If you’re considering CMCSA for your portfolio, see our FREE research report to learn more.
MGM Resorts (MGM)
Market Cap: $7.42 billion
Operating several properties on the Las Vegas Strip, MGM Resorts (NYSE:MGM) is a global hospitality and entertainment company known for its resorts and casinos.
Why Are We Out on MGM?
- Annual sales growth of 2% over the last two years lagged behind its consumer discretionary peers as its large revenue base made it difficult to generate incremental demand
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
MGM Resorts’s stock price of $29.52 implies a valuation ratio of 18.8x forward P/E. Check out our free in-depth research report to learn more about why MGM doesn’t pass our bar.
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