Core Viewpoint - The S&P 500 index contains both strong and weak stocks, with some companies struggling due to poor execution and financial issues, highlighting the need for careful stock selection [1] Group 1: Stocks to Sell - **F5 (FFIV)**: - Market Cap: $14.31 billion - Provides security and delivery solutions for large organizations [2] - Current trading price is $247.11 per share, with a forward price-to-sales ratio of 4.6x [4] - **IBM (IBM)**: - Market Cap: $292 billion - Offers hybrid cloud computing platforms, AI solutions, and consulting services [5] - Stock price of $313.40 implies a forward P/E ratio of 25.9x [7] Group 2: Stock Performance Concerns - **F5 (FFIV)**: - The company is facing challenges that may affect its inclusion in investment portfolios [4] - **IBM (IBM)**: - Concerns regarding better investment opportunities compared to IBM [7] Group 3: Stock to Watch - **Leidos (LDOS)**: - Market Cap: $24.9 billion - Provides technology and engineering solutions for various markets [8] - **Performance Indicators**: - Annual recurring revenue (ARR) dropped by 12.3% over the last year, indicating loss of long-term deals [9] - Estimated sales growth of 1.6% for the next 12 months suggests a slowdown in demand [9] - Operating margin expanded by 1.4 percentage points over the last year, indicating improved efficiency [9] Group 4: Growth Potential and Challenges - **Leidos (LDOS)**: - Scale limits growth potential compared to smaller competitors, with below-average annual revenue increases of 1.3% over the last five years [10] - Earnings growth of 4.2% annually underperformed the sector average [10] - Return on invested capital (ROIC) of 11.7% reflects management challenges in identifying attractive investment opportunities [10] Group 5: Positive Indicators for Leidos - **Leidos (LDOS)**: - Backlog growth averaged 15.2% over the past two years, indicating a strong pipeline of unfulfilled orders [11] - Share buybacks led to an annual earnings per share growth of 27.6%, outperforming revenue gains [11] - Free cash flow margin grew by 3.3 percentage points over the last five years, providing more financial flexibility [11]