Yahoo Finance

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.

Picking the right S&P 500 stocks requires more than just buying big names, and that’s where StockStory comes in. That said, here are three S&P 500 stocks to steer clear of and a few alternatives to consider.

Honeywell (HON)

Market Cap: $143.2 billion

Originally founded in 1906 as a thermostat company, Honeywell (NASDAQ:HON) is a multinational conglomerate known for its aerospace systems, building technologies, performance materials, and safety and productivity solutions.

Why Do We Think Twice About HON?

1. 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

2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.3%

3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 3.2 percentage points

Honeywell is trading at $225.13 per share, or 21.2x forward P/E. If you’re considering HON for your portfolio, see our FREE research report to learn more.

Lockheed Martin (LMT)

Market Cap: $109.7 billion

Headquartered in Maryland, Famous for the F-35 aircraft, Lockheed Martin (NYSE:LMT) specializes in defense, space, homeland security, and information technology products.

Why Do We Avoid LMT?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 3.3% over the last five years was below our standards for the industrials sector

2. Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew

3. Waning returns on capital imply its previous profit engines are losing steam

Lockheed Martin’s stock price of $474 implies a valuation ratio of 16.8x forward P/E. To fully understand why you should be careful with LMT, check out our full research report (it’s free).

STERIS (STE)

Market Cap: $24.72 billion

With a mission critical role in preventing healthcare-associated infections, STERIS (NYSE:STE) provides infection prevention products, sterilization services, and medical equipment that help healthcare facilities and life science companies maintain sterile environments.

Why Are We Cautious About STE?

1. Adjusted operating margin failed to increase over the last two years, indicating the company couldn’t optimize its expenses

2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 3.1 percentage points

3. Below-average returns on capital indicate management struggled to find compelling investment opportunities