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 are two S&P 500 stocks positioned to outperform and one best left off your watchlist.
One Stock to Sell:
FedEx (FDX)
Market Cap: $86.55 billion
Sporting one of the largest air cargo fleets in the world, FedEx (NYSE: FDX) is a global provider of parcel and cargo delivery services.
Why Is FDX Risky?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 2.5% for the last two years
- Poor free cash flow margin of 2.4% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
FedEx is trading at $363.94 per share, or 17x forward P/E. To fully understand why you should be careful with FDX, check out our full research report (it’s free).
Two Stocks to Watch:
Trane Technologies (TT)
Market Cap: $105.5 billion
With low-pressure heating systems as its first product, Trane (NYSE: TT) designs, manufactures, and sells HVAC and refrigeration systems, the former to commercial and residential building customers and the latter to commercial truck manufacturers.
Why Will TT Outperform?
- Annual revenue growth of 11% over the past five years was outstanding, reflecting market share gains this cycle
- Share buybacks catapulted its annual earnings per share growth to 17.6%, which outperformed its revenue gains over the last two years
- Free cash flow margin jumped by 8.4 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $480.58 per share, Trane Technologies trades at 31.8x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Cigna (CI)
Market Cap: $72.92 billion
With roots dating back to 1792 and serving millions of customers across the globe, The Cigna Group (NYSE: CI) provides healthcare services through its Evernorth Health Services and Cigna Healthcare segments, offering pharmacy benefits, specialty care, and medical plans.
Why Does CI Stand Out?
- Solid 16.1% annual revenue growth over the last two years indicates its offering’s solve complex business issues
- Dominant market position is represented by its $277.7 billion in revenue, which gives it negotiating power over membership pricing and reimbursement rates
- Earnings per share have comfortably outperformed the peer group average over the last five years, increasing by 10.9% annually
Cigna’s stock price of $275.70 implies a valuation ratio of 9x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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