Whether you see them or not, industrials businesses play a crucial part in our daily activities. But their prominence also brings high exposure to the ups and downs of economic cycles. Luckily, the tide is turning in their favor as the industry has returned 5.1% over the past six months while the S&P 500 was down 1%.
Regardless of these results, investors should tread carefully. The diversity of companies in this space means that not all are created equal or well-positioned for the inescapable downturn. Keeping that in mind, here is one resilient industrials stock at the top of our wish list and two we’re passing on.
Two Industrials Stocks to Sell:
3M (MMM)
Market Cap: $75.22 billion
Producers of the first asthma inhaler, 3M Company (NYSE: MMM) is a global conglomerate known for products in industries like healthcare, safety, electronics, and consumer goods.
Why Do We Think MMM Will Underperform?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Estimated sales growth of 3.7% for the next 12 months is soft and implies weaker demand
- Earnings per share have dipped by 1.6% annually over the past five years, which is concerning because stock prices follow EPS over the long term
3M is trading at $144.50 per share, or 17.3x forward P/E. If you’re considering MMM for your portfolio, see our FREE research report to learn more.
Crown Holdings (CCK)
Market Cap: $11.29 billion
Formerly Crown Cork & Seal, Crown Holdings (NYSE: CCK) produces packaging products for consumer marketing companies, including food, beverage, household, and industrial products.
Why Is CCK Not Exciting?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 1.3% over the last five years was below our standards for the industrials sector
- Anticipated sales growth of 4.6% for the next year implies demand will be shaky
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 21.1%
At $102.72 per share, Crown Holdings trades at 12.7x forward P/E. Read our free research report to see why you should think twice about including CCK in your portfolio.
One Industrials Stock to Buy:
TransDigm (TDG)
Market Cap: $65.05 billion
Supplying parts for nearly all aircraft currently in service, TransDigm (NYSE: TDG) develops and manufactures components and systems for military and commercial aviation.
Why Is TDG a Top Pick?
- Average organic revenue growth of 10.1% over the past two years demonstrates its ability to expand independently without relying on acquisitions
- Incremental sales over the last five years have been highly profitable as its earnings per share increased by 26.8% annually, topping its revenue gains
- Robust free cash flow margin of 20.4% gives it many options for capital deployment, and its rising cash conversion increases its margin of safety
TransDigm’s stock price of $1,151 implies a valuation ratio of 28.5x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
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