The S&P 500 has delivered impressive returns over the past year, especially in 2023, when tech stocks soared, leading the index to a remarkable 25% gain. However, not all stocks within the S&P 500 are positioned for continued success. Some of these S&P 500 stocks to sell are overvalued or face looming challenges.
Macroeconomic factors such as rising inflation, high interest rates and concerns over global demand have weighed heavily on the broader market. The Federal Reserve recently maintained its interest rate range at 5.25%-5.50%, the highest level since July 2023. The Fed continues to struggle with rising inflation and economic uncertainty, and the progress toward the 2% inflation target remains slow.
Therefore, it’s crucial for investors to assess their portfolios and consider reducing exposure to companies that could underperform. Here are three S&P 500 stocks to sell before they go down.
Hormel Foods (HRL)
Hormel Foods (NYSE:HRL) is known for its quality and consistency in the food industry. With a legacy spanning over a century, the company has built iconic brands. Despite its storied history and stable business, Hormel Foods has faced significant challenges recently, leading to declining margins and rising expenses.
Recently, private-label brands have started to gain traction due to economic pressures, threatening Hormel’s market share. Additionally, a shift toward healthier, plant-based options poses a challenge to traditional meat producers like Hormel.
The company’s operating margins have fallen from 13.5% in 2017 to 8.7% currently, indicating challenges in managing rising operating costs. Moreover, earnings per share has dropped from a peak of $1.91 in 2018 to $1.45 over the last 12 months, representing a decline instead of growth.
Hormel Foods stock has fallen around 12% over the past one year, reflecting the challenges faced by the company at the moment.
Home Depot (HD)
Home Depot (NYSE:HD) has long been a leader in the retail home improvement sector. However, despite the company’s strong brand and historical outperformance, HD’s recent performance has not been great. Over the past two years, Home Depot’s financial performance has shown signs of slowing growth.
The U.S. housing market remains challenging, with higher mortgage rates and inflated home prices keeping buyers away. This has led to a deterioration in Home Depot’s financial performance. The company’s Q4 2023 revenue decreased by 3% to $34.79 billion. Same-store sales fell by 3.5% globally and 4% in the U.S.
Moreover, operating margins fell to 14.1% due to higher costs, including wage increases and lumber deflation. For fiscal 2024, Home Depot expects same-store sales to decline by about 1%, projecting continued moderation in demand due to rising mortgage rates and inflationary pressures.
The company’s forward P/E ratio stands at 22x, compared to its five-year average of 21x. This premium valuation is difficult to justify, given slowing growth.
Intuit (INTU)
Intuit (NASDAQ:INTU) has long been regarded as a leader in financial software and services. The company offers a comprehensive suite of products like TurboTax, QuickBooks, Mailchimp and Credit Karma. Despite the company’s strong brand and innovative AI-driven strategy, the company’s stock is not expected to do well in the future.
Firstly, Intuit currently trades at a forward P/E of 63x based on GAAP metrics. This valuation is significantly higher than the industry average and makes Intuit one of the most expensive tech stocks on the market.
Moreover, Intuit’s growth has been slowing down in recent years. While Intuit expects 11-12% revenue growth and 12-14% non-GAAP operating income growth in FY 2024, these rates are lower than the growth rates seen in previous years. The gradual decline in Intuit’s forward revenue growth rate from 23% in FY 2022 to 12% currently raises concerns about the company’s sustainability of growth.
Furthermore, INTU’s suite of products faces tough competition in the market. QuickBooks is challenged by smaller, more agile competitors offering similar financial management tools. Mailchimp is losing market share in email marketing to more feature-rich platforms like HubSpot.
On the date of publication, Mohammed Saqib did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.