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 3.9% over the past six months while the S&P 500 was down 2.1%.
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. With that said, here is one resilient industrials stock at the top of our wish list and two we’re passing on.
Two Industrials Stocks to Sell:
Atkore (ATKR)
Market Cap: $2.08 billion
Protecting the things that power our world, Atkore (NYSE: ATKR) designs and manufactures electrical safety products.
Why Do We Steer Clear of ATKR?
- Annual sales declines of 9.6% for the past two years show its products and services struggled to connect with the market during this cycle
- Free cash flow margin shrank by 9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $61.51 per share, Atkore trades at 11.2x forward P/E. To fully understand why you should be careful with ATKR, check out our full research report (it’s free).
GATX (GATX)
Market Cap: $6.19 billion
Originally founded to ship beer, GATX (NYSE: GATX) provides leasing and management services for railcars and other transportation assets globally.
Why Do We Think Twice About GATX?
- Demand for its offerings was relatively low as its number of active railcars has underwhelmed
- Cash-burning history makes us doubt the long-term viability of its business model
- 8× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
GATX’s stock price of $174.28 implies a valuation ratio of 17.2x forward P/E. If you’re considering GATX for your portfolio, see our FREE research report to learn more.
One Industrials Stock to Buy:
AAR (AIR)
Market Cap: $4.31 billion
The first third-party MRO approved by the FAA for Safety Management System Requirements, AAR (NYSE: AIR) is a provider of aircraft maintenance services
Why Is AIR a Good Business?
- Annual revenue growth of 18.9% over the past two years was outstanding, reflecting market share gains this cycle
- Revenue outlook for the upcoming 12 months is outstanding and shows it’s on track to gain market share
- Earnings per share grew by 19.5% annually over the last two years, massively outpacing its peers
AAR is trading at $114.38 per share, or 20.7x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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