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 17.8% for the sector - higher than the S&P 500’s 8.4% 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. With that said, here is one industrials stock poised to generate sustainable market-beating returns and two we’re swiping left on.
Two Industrials Stocks to Sell:
Arrow Electronics (ARW)
Market Cap: $11.4 billion
Founded as a single retail store, Arrow Electronics (NYSE: ARW) provides electronic components and enterprise computing solutions to businesses globally.
Why Are We Out on ARW?
- The company has faced growth challenges as its 1.8% annual revenue increases over the last five years fell short of other industrials companies
- Earnings per share fell by 1.5% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- Eroding returns on capital suggest its historical profit centers are aging
At $228.40 per share, Arrow Electronics trades at 11.4x forward P/E. If you’re considering ARW for your portfolio, see our FREE research report to learn more.
KB Home (KBH)
Market Cap: $3.40 billion
The first homebuilder to be listed on the NYSE, KB Home (NYSE: KBH) is a homebuilding company targeting the first-time home buyer and move-up buyer markets.
Why Do We Pass on KBH?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 28% declines over the past two years
- Earnings per share have contracted by 13.4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Waning returns on capital imply its previous profit engines are losing steam
KB Home is trading at $53.95 per share, or 16.2x forward P/E. Check out our free in-depth research report to learn more about why KBH doesn’t pass our bar.
One Industrials Stock to Watch:
Corning (GLW)
Market Cap: $151.9 billion
Supplying windows for some of the United States’s earliest spacecraft, Corning (NYSE: GLW) provides glass and other electronic components for the consumer electronics, telecommunications, automotive, and healthcare industries.
Why Should GLW Be on Your Watchlist?
- Annual revenue growth of 12.6% over the last two years was superb and indicates its market share increased during this cycle
- Projected revenue growth of 16.6% for the next 12 months is above its two-year trend, pointing to accelerating demand
- Earnings per share grew by 26.9% annually over the last two years and trumped its peers
Corning’s stock price of $179.92 implies a valuation ratio of 52.6x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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