The S&P 500 has been a common choice for passive investors. It has delivered steady returns over the years, especially for investors who withstood market corrections and continued to make regular investments.
The stock market has done an excellent job of outperforming many types of assets, but not every S&P 500 holding has been a winner. Some companies featured in the S&P 500 have been declining for years, making them unappealing for investors.
Investors can look at S&P 500 ETFs with fewer than 500 holdings to realize that more isn’t always better. For instance, the iShares S&P 100 ETF (NYSEARCA:OEF) only holds the Top 100 companies within the S&P 500. This less-diversified ETF has outperformed the S&P 500 year-to-date and over the past five years. The same story applies to the Invesco S&P 500 Top 50 ETF (NYSEARCA:XLG). Wondering which S&P 500 stocks are going to lose value next? It may benefit investors to avoid these three stocks.
Nike (NKE)
Nike (NYSE:NKE) has been one of the biggest losers in the S&P 500 year-to-date. Shares have sunk by 32% YTD and are down by 17% over the past five years. The athletic apparel company remains relevant due to its iconic status and multi-billion dollar advertising budget. However, Nike has struggled with revenue growth for several quarters, making it more difficult to ignore that truth.
Nike pitches itself as a “growth company” which is a generous use of the term given its 1% YOY revenue growth throughout fiscal 2024. However, it’s worse than that since Q4 FY24 revenue dipped by 2% YOY. Profit margins held steady in the low double-digits, which has been normal for the company in most quarters.
The athletic apparel company should remain the leader for a long time, but the presence of many viable competitors makes the path to additional market share more difficult. Investors don’t buy shares in a company that they believe will stay the same. They want to see companies that grow. Nike’s 2% YOY revenue drop in Q4 FY24 and dismal year-to-date returns don’t make it a candidate for sterling gains.
Etsy (ETSY)
It’s never good news when the bullish thesis for a stock revolves around what it did during the pandemic. Etsy (NASDAQ:ETSY) got away with this in 2021 when growth rates were still respectable, but the stock’s gains popped like a balloon from 2022 and onward. The stock has lost 12% over the past five years which is shocking to see given the company’s tremendous gains during the pandemic. The losses have only gotten worse, with the stock declining by 23% YTD.
Even with the declines, Etsy’s 28.5 P/E ratio does not give it much room for making errors. It’s not priced to perfection, but declining profits and gross merchandise sales cast some serious doubt on the valuation. Etsy reported a 3.7% YOY decline in consolidated gross merchandise sales in the first quarter, while net income dropped by 15.5% YOY. The company managed to deliver 0.7% YOY revenue growth, but that’s only because of higher fees and more ads. That’s not a winning combination for long-term investors.
Walgreens (WBA)
The S&P 500 contains underperformers, but no sock in the index has performed as poorly as Walgreens (NASDAQ:WBA). The stock is down by a dreadful 56% YTD and has shed 79% of its value over the past five years. Store closures, less demand, and rising crime have contributed to the company’s downfall.
There’s also the possibility that Walgreens won’t be in the S&P 500 by the end of the year. A few stocks get added to the index each quarter, and those additional require some subtractions to keep the total holdings at 500. It was removed from the Dow Jones Industrial Average earlier this year, so it’s not farfetched.
Walgreens mentioned “eroded pharmacy margins” in its Q3 FY24 press release. Revenue only increased by 2.6% YOY in that quarter. Major store closures will address unprofitable locations, but Walgreens’ market share will shrink in the process.
On the date of publication, Marc Guberti did not have (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
