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 18.8% return over the past six months has topped the S&P 500 by 8.8 percentage points.
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 best left ignored.
Two Industrials Stocks to Sell:
Titan International (TWI)
Market Cap: $610.1 million
Acquiring Goodyear’s farm tire business in 2005, Titan (NSYE:TWI) is a manufacturer and supplier of wheels, tires, and undercarriages used in off-highway vehicles such as construction vehicles.
Why Do We Avoid TWI?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.7% annually over the last two years
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 73.4% annually, worse than its revenue
- Diminishing returns on capital suggest its earlier profit pools are drying up
Titan International’s stock price of $9.64 implies a valuation ratio of 77.9x forward P/E. To fully understand why you should be careful with TWI, check out our full research report (it’s free).
Vishay Precision (VPG)
Market Cap: $665 million
Emerging from Vishay Intertechnology in 2010, Vishay Precision (NYSE: VPG) operates as a global provider of precision measurement and sensing technologies.
Why Should You Sell VPG?
- Annual sales declines of 9% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share fell by 15.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Vishay Precision is trading at $50.10 per share, or 53.2x forward P/E. If you’re considering VPG for your portfolio, see our FREE research report to learn more.
One Industrials Stock to Watch:
Leonardo DRS (DRS)
Market Cap: $10.92 billion
Developing submarine detection systems for the U.S. Navy, Leonardo DRS (NASDAQ: DRS) is a provider of defense systems, electronics, and military support services.
Why Do We Watch DRS?
- Annual revenue growth of 14.5% over the past two years was outstanding, reflecting market share gains this cycle
- Backlog has averaged 44.8% growth over the past two years, showing it has a pipeline of unfulfilled orders that will support revenue in the future
- Earnings growth has trumped its peers over the last two years as its EPS has compounded at 19.5% annually
At $41.10 per share, Leonardo DRS trades at 34.9x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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