Whether you see them or not, industrials businesses play a crucial part in our daily activities. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 20.5% for the sector - higher than the S&P 500’s 13.2% return.
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. On that note, here are three industrials stocks that may face trouble.
Icahn Enterprises (IEP)
Market Cap: $4.78 billion
Founded in 1987, Icahn Enterprises (NASDAQ: IEP) is a diversified holding company primarily engaged in investment and asset management across various sectors.
Why Do We Avoid IEP?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4.6% annually over the last two years
- Flat earnings per share over the last five years lagged its peers
- 12.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Icahn Enterprises is trading at $7.53 per share, or 0.5x trailing 12-month price-to-sales. Read our free research report to see why you should think twice about including IEP in your portfolio.
Expeditors (EXPD)
Market Cap: $20.61 billion
Expeditors (NYSE: EXPD) offers air and ocean freight as well as brokerage services.
Why Are We Hesitant About EXPD?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Gross margin of 13.5% reflects its high production costs
- Eroding returns on capital suggest its historical profit centers are aging
At $157.58 per share, Expeditors trades at 23.4x forward P/E. If you’re considering EXPD for your portfolio, see our FREE research report to learn more.
Kennametal (KMT)
Market Cap: $2.64 billion
Involved in manufacturing hard tips of anti-tank projectiles in World War II, Kennametal (NYSE: KMT) is a provider of industrial materials and tools for various sectors.
Why Is KMT Not Exciting?
- Annual revenue growth of 2% over the last two years was below our standards for the industrials sector
- 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
- Low returns on capital reflect management’s struggle to allocate funds effectively
Kennametal’s stock price of $34.58 implies a valuation ratio of 6.4x forward P/E. To fully understand why you should be careful with KMT, check out our full research report (it’s free).
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