Large-cap stocks usually command their industries because they have the scale to drive market trends. The flip side though is that their sheer size can limit growth as expanding further becomes an increasingly challenging task.
This dynamic can trouble even the most skilled investors, but luckily for you, we started StockStory to help you navigate these trade-offs and uncover exceptional companies that break the mold. That said, here are three large-cap stocks whose existing offerings may be tapped out and some other investments you should look into instead.
CBRE (CBRE)
Market Cap: $46.05 billion
Established in 1906, CBRE (NYSE:CBRE) is one of the largest commercial real estate services firms in the world.
Why Should You Sell CBRE?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 9.4% for the last five years
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 2.6% for the last two years
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
CBRE’s stock price of $158.81 implies a valuation ratio of 23.7x forward P/E. If you’re considering CBRE for your portfolio, see our FREE research report to learn more.
Johnson Controls (JCI)
Market Cap: $71.22 billion
Founded after patenting the electric room thermostat, Johnson Controls (NYSE:JCI) specializes in building products and technology solutions, including HVAC systems, fire and security systems, and energy storage.
Why Do We Pass on JCI?
- 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
- Projected sales growth of 4.2% for the next 12 months suggests sluggish demand
- Underwhelming 7.3% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
At $109.38 per share, Johnson Controls trades at 25.4x forward P/E. To fully understand why you should be careful with JCI, check out our full research report (it’s free for active Edge members).
Agilent (A)
Market Cap: $40.23 billion
Originally spun off from Hewlett-Packard in 1999 as its measurement and analytical division, Agilent Technologies (NYSE:A) provides analytical instruments, software, services, and consumables for laboratory workflows in life sciences, diagnostics, and applied chemical markets.
Why Is A Not Exciting?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.5% annually over the last two years
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Free cash flow margin dropped by 4.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Agilent is trading at $141.92 per share, or 23.9x forward P/E. Read our free research report to see why you should think twice about including A in your portfolio.
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