Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. 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’s 16.3% return over the past six months has topped the S&P 500 by 8.3 percentage points.
Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. Keeping that in mind, here is one industrials stock poised to generate sustainable market-beating returns and two best left ignored.
Two Industrials Stocks to Sell:
Tecnoglass (TGLS)
Market Cap: $1.94 billion
The first-ever Colombian company to trade on the NASDAQ, Tecnoglass (NYSE: TGLS) is a manufacturer of architectural glass, windows, and aluminum products.
Why Is TGLS Not Exciting?
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 1.7% annually while its revenue grew
- Free cash flow margin dropped by 10.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Waning returns on capital imply its previous profit engines are losing steam
Tecnoglass is trading at $44.55 per share, or 17x forward P/E. Read our free research report to see why you should think twice about including TGLS in your portfolio.
Huntington Ingalls (HII)
Market Cap: $11.86 billion
Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE: HII) develops marine vessels and their mission systems and maintenance services.
Why Do We Think HII Will Underperform?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 5.3% over the last two years was below our standards for the industrials sector
- Estimated sales growth of 2.4% for the next 12 months implies demand will slow from its two-year trend
- Earnings per share have dipped by 1.5% annually over the past five years, which is concerning because stock prices follow EPS over the long term
Huntington Ingalls’s stock price of $294.00 implies a valuation ratio of 16.2x forward P/E. If you’re considering HII for your portfolio, see our FREE research report to learn more.
One Industrials Stock to Watch:
Astec (ASTE)
Market Cap: $1.16 billion
Inventing the first ever double-barrel hot-mix asphalt plant, Astec (NASDAQ: ASTE) provides machines and equipment for building roads, processing raw materials, and producing concrete.
Why Are We Fans of ASTE?
- Sales outlook for the upcoming 12 months calls for 11.3% growth, an acceleration from its two-year trend
- Operating margin improvement of 4.6 percentage points over the last five years demonstrates its ability to scale efficiently
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 18.5% annually, topping its revenue gains
At $58.81 per share, Astec trades at 14.5x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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