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.
Even among blue-chip stocks, not all investments are created equal - which is why we built StockStory to help you navigate the market. That said, here are three S&P 500 stocks that don’t make the cut and some better choices instead.
Teradyne (TER)
Market Cap: $52.25 billion
Sporting most major chip manufacturers as its customers, Teradyne (NASDAQ: TER) is a US-based supplier of automated test equipment for semiconductors as well as other technologies and devices.
Why Does TER Give Us Pause?
- Annual revenue growth of 3.4% over the last five years was below our standards for the semiconductor sector
- Anticipated sales growth of 17.9% for the next year implies demand will be shaky
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 10.7 percentage points
Teradyne is trading at $333.50 per share, or 45.7x forward P/E. To fully understand why you should be careful with TER, check out our full research report (it’s free).
Ralph Lauren (RL)
Market Cap: $22.41 billion
Originally founded as a necktie company, Ralph Lauren (NYSE: RL) is an iconic American fashion brand known for its classic and sophisticated style.
Why Do We Steer Clear of RL?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
At $377.00 per share, Ralph Lauren trades at 20.6x forward P/E. Read our free research report to see why you should think twice about including RL in your portfolio.
DaVita (DVA)
Market Cap: $15.03 billion
With over 2,600 dialysis centers across the United States and a presence in 13 countries, DaVita (NYSE: DVA) operates a network of dialysis centers providing treatment and care for patients with chronic kidney disease and end-stage kidney disease.
Why Does DVA Fall Short?
- Flat treatments over the past two years indicate demand is soft and that the company may need to revise its strategy
- Estimated sales growth of 2.6% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin dropped by 1.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
DaVita’s stock price of $234.00 implies a valuation ratio of 15.5x forward P/E. Check out our free in-depth research report to learn more about why DVA doesn’t pass our bar.
Stocks We Like More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.
