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.
Some large-cap stocks are past their peak, and StockStory is here to help you separate the winners from the laggards. Keeping that in mind, here is one S&P 500 stock that could deliver good returns and two best left off your watchlist.
Two Stocks to Sell:
McCormick (MKC)
Market Cap: $17.45 billion
The classic red Heinz ketchup bottle’s competitor, McCormick (NYSE: MKC) sells food-flavoring products like condiments, spices, and seasoning mixes.
Why Does MKC Fall Short?
- Sales trends were unexciting over the last three years as its 2.1% annual growth was below the typical consumer staples company
- 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
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 1.9 percentage points
McCormick is trading at $65.04 per share, or 20.8x forward P/E. Read our free research report to see why you should think twice about including MKC in your portfolio.
Avery Dennison (AVY)
Market Cap: $13.45 billion
Founded as Kum Kleen Products, Avery Dennison (NYSE: AVY) is a manufacturer of adhesive materials, display graphics, and packaging products, serving various industries.
Why Is AVY Not Exciting?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- 2.5 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $174.07 per share, Avery Dennison trades at 17.1x forward P/E. Check out our free in-depth research report to learn more about why AVY doesn’t pass our bar.
One Stock to Watch:
PTC (PTC)
Market Cap: $21.1 billion
Originally known as Parametric Technology Corporation until its 2013 rebranding, PTC (NASDAQ: PTC) provides software that helps manufacturers design, develop, and service physical products through digital solutions for CAD, PLM, ALM, and SLM.
Why Could PTC Be a Winner?
- Superior software functionality and low servicing costs lead to a stellar gross margin of 83.8%
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
- Healthy operating margin of 35.9% shows it’s a well-run company with efficient processes, and its operating leverage amplified its profits over the last year
PTC’s stock price of $176.11 implies a valuation ratio of 7.7x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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