Large-cap stocks are known for their staying power and ability to weather market storms better than smaller competitors. However, their sheer size makes it more challenging to maintain high growth rates as they’ve already captured significant portions of their markets.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you find high-quality companies that can grow their earnings no matter what. Keeping that in mind, here are three large-cap stocks that may face near-term headwinds and some other investments you should consider instead.
Norfolk Southern (NSC)
Market Cap: $63.38 billion
Starting with a single route from Virginia to North Carolina, Norfolk Southern (NYSE: NSC) is a freight transportation company operating a major railroad network across the eastern United States.
Why Are We Out on NSC?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Efficiency has decreased over the last five years as its operating margin fell by 4.1 percentage points
- Free cash flow margin shrank by 8.4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Norfolk Southern’s stock price of $283.24 implies a valuation ratio of 23.5x forward P/E. Read our free research report to see why you should think twice about including NSC in your portfolio.
GE HealthCare (GEHC)
Market Cap: $31.38 billion
Spun off from industrial giant General Electric in 2023 after over a century as its healthcare division, GE HealthCare (NASDAQ: GEHC) provides medical imaging equipment, patient monitoring systems, diagnostic pharmaceuticals, and AI-enabled healthcare solutions to hospitals and clinics worldwide.
Why Are We Hesitant About GEHC?
- Annual sales growth of 2.7% over the last two years lagged behind its healthcare peers as its large revenue base made it difficult to generate incremental demand
- 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
At $68.57 per share, GE HealthCare trades at 13.7x forward P/E. Check out our free in-depth research report to learn more about why GEHC doesn’t pass our bar.
CVS Health (CVS)
Market Cap: $89.23 billion
With over 9,000 retail pharmacy locations serving as neighborhood health destinations across America, CVS Health (NYSE: CVS) operates retail pharmacies, provides pharmacy benefit management services, and offers health insurance through its Aetna subsidiary.
Why Are We Wary of CVS?
- Annual sales growth of 6% over the last two years lagged behind its healthcare peers as its large revenue base made it difficult to generate incremental demand
- Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 2.1% annually
CVS Health is trading at $69.97 per share, or 9.8x forward P/E. To fully understand why you should be careful with CVS, check out our full research report (it’s free).
Stocks We Like More
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