Even if they go mostly unnoticed, industrial businesses are the backbone of our country. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the market seems convinced that demand will slow. Due to this bearish outlook, the industry has tumbled by 7.2% over the past six months. This drawdown is a noticeable divergence from the S&P 500’s 12% return.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. On that note, here is one industrials stock boasting a durable advantage and two we’re passing on.
Two Industrials Stocks to Sell:
Ingersoll Rand (IR)
Market Cap: $30.63 billion
Started with the invention of the steam drill, Ingersoll Rand (NYSE: IR) provides mission-critical air, gas, liquid, and solid flow creation solutions.
Why Do We Think Twice About IR?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 3.2% annually
- Low returns on capital reflect management’s struggle to allocate funds effectively
Ingersoll Rand is trading at $78.95 per share, or 21.5x forward P/E. If you’re considering IR for your portfolio, see our FREE research report to learn more.
D.R. Horton (DHI)
Market Cap: $37.89 billion
One of the largest homebuilding companies in the U.S., D.R. Horton (NYSE: DHI) builds a variety of new construction homes across multiple markets.
Why Are We Bearish on DHI?
- Backlog has dropped by 3.6% on average over the past two years, suggesting it’s losing orders as competition picks up
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Diminishing returns on capital suggest its earlier profit pools are drying up
D.R. Horton’s stock price of $135.76 implies a valuation ratio of 12.4x forward P/E. Dive into our free research report to see why there are better opportunities than DHI.
One Industrials Stock to Watch:
Hexcel (HXL)
Market Cap: $6.51 billion
Founded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE: HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.
Why Do We Watch HXL?
- Projected revenue growth of 10.6% for the next 12 months indicates demand will rise above its two-year trend
- Share repurchases over the last five years enabled its annual earnings per share growth of 44.8% to outpace its revenue gains
- Free cash flow margin expanded by 7.9 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
At $86.13 per share, Hexcel trades at 32.1x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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