Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Unfortunately, this role also comes with a demand profile tethered to the ebbs and flows of the broader economy, and the industry is currently lagging as its six-month return of 4.7% has trailed the S&P 500’s 14% gain.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. On that note, here is one resilient industrials stock at the top of our wish list and two we’re steering clear of.
Two Industrials Stocks to Sell:
Lindsay (LNN)
Market Cap: $1.25 billion
A pioneer in the field of center pivot and lateral move irrigation, Lindsay (NYSE:LNN) provides a variety of proprietary water management and road infrastructure products and services.
Why Do We Pass on LNN?
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Flat sales over the last two years suggest it must find different ways to grow during this cycle
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Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
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Diminishing returns on capital suggest its earlier profit pools are drying up
Lindsay is trading at $123.42 per share, or 22.3x forward P/E. Read our free research report to see why you should think twice about including LNN in your portfolio, it’s free.
Gates Industrial Corporation (GTES)
Market Cap: $6.57 billion
Helping create one of the most memorable moments for the iconic “Jurassic Park” film, Gates (NYSE:GTES) offers power transmission and fluid transfer equipment for various industries.
Why Are We Cautious About GTES?
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Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
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Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 5.2% annually
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ROIC of 6.9% reflects management’s challenges in identifying attractive investment opportunities
Gates Industrial Corporation’s stock price of $25.95 implies a valuation ratio of 13.8x forward P/E. If you’re considering GTES for your portfolio, see our FREE research report to learn more.
One Industrials Stock to Watch:
Enpro (NPO)
Market Cap: $6.23 billion
Holding a Guinness World Record for creating the world’s largest gasket, Enpro (NYSE:NPO) designs, manufactures, and sells products used for machinery in various industries.
Why Do We Watch NPO?
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Offerings are difficult to replicate at scale and result in a stellar gross margin of 41.1%
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Earnings per share grew by 15.9% annually over the last two years and trumped its peers
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Robust free cash flow margin of 12.8% gives it many options for capital deployment
