He S&P 500 Index The S&P 500 index is a prestigious club comprising 500 of the largest American companies. A company that enters the S&P 500 only does so after careful evaluation by a committee that aims to ensure that the index includes only the best.
But not even S&P 500 stocks are immune to adversity. Some S&P 500 companies are struggling even as the index is near record highs. Some of these stocks have fallen as much as 43% from their previous highs.
Instead of chasing what’s hot, think about why these three struggling stocks made it into the S&P 500 in the first place. Their current struggles don’t change the fact that they’re excellent buy-and-hold candidates worth considering for your portfolio today.
1. A strong commitment to artificial intelligence
Supermicrocomputer (NASDAQ: SMCI) Super Micro Computer is one of the index’s newest members, having joined the S&P 500 just a few months ago. The company started out with electronic components in the early 1990s, but its core business today is building modular server systems for data centers. Companies that don’t have the technical know-how or desire to build custom data centers can turn to Super Micro Computer for turnkey systems.
Demand for artificial intelligence (AI) has seen corporations invest heavily in data centers, helping accelerate Super Micro Computer’s revenue growth to 200% year-over-year in its most recent quarters. The stock has been a winner, up more than 200% over the past year. However, the stock has cooled off and is now down 31% due to potential concerns about how sustainable this growth is.
While triple-digit growth won’t last forever, the future remains bright. Experts expect sustained investments in data centers over the next few years, which should steadily boost Supermicro’s business.
Super Micro Computer has said it is gaining market share, underscoring its strong reputation in the sector. Analysts believe the company’s earnings will grow by more than 50% annually over the next three to five years. That makes the stock a bargain today with a forward price-to-earnings ratio of just 34.
2. A legendary consumer staples brand is 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 are drawn to these products because of brand recognition, and people buy them on a regular basis. That makes Clorox an enduring company that performs well in good times and bad.
Clorox shares have been unusually volatile, down more than 40% from their highs, their steepest drop since the early 2000s.
So what happened? First, the stock performed very well during the pandemic due to increased demand for disinfectant products. The stock rose to more than 40 times earnings, a very high price for a consumer staples stock.
Last summer, hackers attacked Clorox, disrupting the company’s operations. The attack affected Clorox’s supply chain, impairing the company’s ability to process and fulfill orders. The security breach was the catalyst that initiated the stock’s reversal to a more reasonable price.
Clorox is on the mend. Analysts are forecasting revenue growth starting next year and earnings growth of 10% annually over the next three to five years. While a P/E ratio of 40 didn’t make sense, the current forward P/E ratio 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 the largest electric utility in the United States. The company has benefited from the broad growth of renewable energy in the United States over the past several decades. Renewable energy still accounts for just over 20% of all electric power generated in the United States, leaving plenty of room for growth in the decades ahead. The company is also a well-known dividend growth stock; management has increased the dividend for 30 consecutive years.
Energy and utility companies require huge investment to build new capacity and maintain infrastructure, so NextEra relies heavily on borrowing. Rising interest rates make borrowing more expensive, which is a headwind for NextEra’s business and has cooled sentiment in the stock. The stock has fallen more than 20% from its peak, though it has already recovered from a drop of as much as 40%.
Shares are still trading reasonably at just over 20 times earnings, notably below their average P/E of 28 over the past decade. Investors can expect continued demand for renewable energy to drive NextEra’s steady growth, which has helped the stock outperform the S&P 500 for decades. NextEra is an excellent company that trades at a solid price today.
Should You Invest $1,000 in a 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 NextEra Energy and recommends it. The Motley Fool has a disclosure policy.
3 Great S&P 500 Stocks With Dividends That Fell Between 25% and 43% to Buy and Hold Forever was originally published by The Motley Fool