The S&P 500 index is a prestigious club comprising 500 of the most prominent American companies. A company that joins the S&P 500 only does so after careful consideration by a committee that aims to ensure the index includes only the cream of the crop.
But even stocks in the S&P 500 aren’t immune to adversity. Some S&P 500 companies are struggling even as the index sits near all-time highs. Some of these stocks are down from their former highs by as much as 43%.
Instead of chasing what’s hot, consider why these three struggling stocks made the S&P 500 in the first place. Their current struggles don’t change the fact they are wonderful buy-and-hold candidates worth considering for your portfolio today.
1. A strong play on artificial intelligence
Super Micro Computer (NASDAQ: SMCI) is one of the index’s newest members; it was added to the S&P 500 just a few months ago. The company began in electronic components in the early 1990s, but its primary business today is building modular server systems for data centers. Companies without the know-how or desire to custom-build data centers can turn to Super Micro Computer for turnkey systems.
Demand for artificial intelligence (AI) has corporations heavily investing in data centers, which helped accelerate Super Micro Computer’s revenue growth to 200% year over year in its most recent quarters. The stock has been a winner, surging over 200% over the past year. However, shares have cooled and are now down 31% over potential concerns about how sustainable this growth is.
While triple-digit growth won’t last forever, the future remains bright. Experts anticipate sustained investments in data centers over the coming years, which should steadily boost Supermicro’s business.
Super Micro Computer has noted it’s taking market share, which underlines its strong reputation in the field. Analysts believe the company’s earnings will grow by over 50% annually for the next three to five years. That makes the stock a potential bargain today at a forward price-to-earnings ratio of just 34.
2. A legendary consumer staples name getting back on its feet
Most consumers are familiar with Clorox (NYSE: CLX) and its various household products from brands like Clorox, Pine-Sol, Brita, Glad, Burt’s Bees, and more. Consumers gravitate toward these products due to name recognition, and people routinely buy them. That makes Clorox a durable business that performs well in good and bad times.
Clorox’s stock has been uncharacteristically volatile; shares are down over 40% from their highs, its steepest drop since the early 2000s.
So, what happened? First, the stock did very well during the pandemic due to increased demand for disinfectant products. Shares surged to over 40 times earnings, a very steep price for a consumer staples stock.
Then, hackers breached Clorox last summer, disrupting the company’s operations. The attack hit Clorox’s supply chain, hurting the company’s ability to process and fulfill orders. The breach was the catalyst that began the stock’s reversion to a more reasonable price.
Clorox is getting back on its feet. Analysts anticipate revenue growth beginning next year and earnings growth of 10% annually for the next three to five years. While a P/E ratio of 40 was nonsensical, today’s forward P/E of 23 makes the stock a potential buying opportunity for long-term investors.
3. A leader in renewable energy
NextEra Energy (NYSE: NEE) is the world’s largest producer of renewable energy and America’s largest electric utility business. The company has benefited from broad growth of renewable energy in America over the past several decades. Renewable energy is still just over 20% of all electric power generated in the United States, leaving a lot of room to grow over the upcoming decades. The company is also a well-known dividend growth stock; management has raised the dividend for 30 consecutive years.
Energy and utility businesses require a lot of investment to build new capacity and maintain infrastructure, so NextEra relies heavily on borrowing money. Rising interest rates make borrowing more expensive, which is a headwind for NextEra’s business and has cooled sentiment on the stock. Shares have fallen over 20% from their high, though they’ve already rebounded from as much as 40% down.
Shares are still reasonably priced at just over 20 times earnings, notably below its average P/E of 28 over the past decade. Investors can expect continued demand for renewable energy to fuel steady growth for NextEra, which has helped the stock outperform the S&P 500 for decades. NextEra is an excellent company that is trading at a solid price today.
Should you invest $1,000 in Super Micro Computer right now?
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.
3 Magnificent S&P 500 Dividend Stocks Down 25% to 43% to Buy and Hold Forever was originally published by The Motley Fool
