Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Their momentum is also rising as lower interest rates have incentivized higher capital spending, and as a result, the industry has posted a six-month gain of 4.7%. This was a good place to be as the S&P 500 shed 2.3% of its value.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. On that note, here is one resilient industrials stock at the top of our wish list and two that may face trouble.
Two Industrials Stocks to Sell:
Graco (GGG)
Market Cap: $14.03 billion
Founded in 1926, Graco (NYSE: GGG) is an industrial company specializing in the development and manufacturing of fluid-handling systems and products.
Why Does GGG Worry Us?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Waning returns on capital imply its previous profit engines are losing steam
Graco’s stock price of $84.62 implies a valuation ratio of 26.6x forward P/E. If you’re considering GGG for your portfolio, see our FREE research report to learn more.
Resideo (REZI)
Market Cap: $5.24 billion
Resideo Technologies, Inc. (NYSE: REZI) is a manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security.
Why Are We Hesitant About REZI?
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
- Free cash flow margin dropped by 21.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Resideo is trading at $34.64 per share, or 11.2x forward P/E. Dive into our free research report to see why there are better opportunities than REZI.
One Industrials Stock to Watch:
Standex (SXI)
Market Cap: $3.12 billion
Holding over 500 patents globally, Standex (NYSE: SXI) is a manufacturer and distributor of industrial components for various sectors.
Why Could SXI Be a Winner?
- Offerings are difficult to replicate at scale and lead to a premier gross margin of 38.8%
- Disciplined cost controls and effective management resulted in a strong long-term operating margin of 15%, and its operating leverage amplified its profits over the last five years
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
At $257.70 per share, Standex trades at 27.1x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
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