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. Keeping that in mind, here is one S&P 500 stock that is positioned to outperform and two that may struggle.
Two stocks to sell:
Twilio (TWLO)
Market Cap: $38.95 billion
Known for the clever “Twilio Magic” demo that had developers creating functioning communications apps in minutes, Twilio (NYSE:TWLO) provides a platform that enables businesses to communicate with their customers through voice, messaging, email, and other digital channels.
Why Is TWLO Not Exciting?
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14.7% annual revenue growth over the last two years was slower than its software peers
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Gross margin of 48.6% reflects its high servicing costs
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Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
Twilio’s stock price of $254.75 implies a valuation ratio of 6.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than TWLO.
Baxter (BAX)
Market Cap: $13.26 billion
With a history dating back to 1931 and products used in over 100 countries, Baxter International (NYSE:BAX) provides essential healthcare products including dialysis therapies, IV solutions, infusion systems, surgical products, and patient monitoring technologies to hospitals and clinics worldwide.
Why Are We Bearish on BAX?
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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
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Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 8.5% annually, worse than its revenue
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Negative returns on capital show that some of its growth strategies have backfired
At $25.45 per share, Baxter trades at 11.9x forward P/E. If you’re considering BAX for your portfolio, see our FREE research report to learn more.
One stock to buy:
Monster (MNST)
Market Cap: $92.66 billion
Founded in 2002 as a natural soda and juice company, Monster Beverage (NASDAQ:MNST) is a pioneer of the energy drink category, and its Monster Energy brand targets a young, active demographic.
Why Will MNST Beat the Market?
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Excellent operating margin of 28.6% highlights the efficiency of its business model, and it turbocharged its profits by achieving some fixed cost leverage
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MNST is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
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Industry-leading 35.4% return on capital demonstrates management’s skill in finding high-return investments, and its rising returns show it’s making even more lucrative bets
