In This Article:
"Too big to fail" is how we would describe the megacap stocks in this article today. While they will likely stand the test of time, it’s not all sunshine and rainbows as their scale can limit their ability to find new sources of growth.
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 is one industry titan whose competitive advantages creates flywheel effects and two that could be stalling.
Two Mega-Cap Stocks to Sell:
AbbVie (ABBV)
Market Cap: $346.8 billion
Born from a 2013 spinoff of Abbott Laboratories' pharmaceutical business, AbbVie (NYSE:ABBV) is a biopharmaceutical company that develops and markets medications for autoimmune diseases, cancer, neurological disorders, and other complex health conditions.
Why Do We Think Twice About ABBV?
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Sales were flat over the last two years, indicating it’s failed to expand this cycle
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Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
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Costs have risen faster than its revenue over the last two years, causing its adjusted operating margin to decline by 9.2 percentage points
AbbVie is trading at $196 per share, or 15.4x forward P/E. Read our free research report to see why you should think twice about including ABBV in your portfolio, it’s free.
Abbott Laboratories (ABT)
Market Cap: $230.7 billion
With roots dating back to 1888 when founder Dr. Wallace Abbott began producing precise, dosage-form medications, Abbott Laboratories (NYSE:ABT) develops and sells a diverse range of healthcare products including medical devices, diagnostics, nutrition products, and branded generic pharmaceuticals.
Why Are We Hesitant About ABT?
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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 1% for the last two years
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Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
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4.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
At $132.40 per share, Abbott Laboratories trades at 24.9x forward P/E. Dive into our free research report to see why there are better opportunities than ABT.
One Mega-Cap Stock to Buy:
GE Aerospace (GE)
Market Cap: $222.8 billion