Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Their momentum is also rising as lower interest rates have incentivized higher capital spending, and as a result, the industry has posted a six-month gain of 5.1%. This was a good place to be as the S&P 500 shed 1% of its value.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. Taking that into account, here is one industrials stock boasting a durable advantage and two best left ignored.
Two Industrials Stocks to Sell:
Saia (SAIA)
Market Cap: $8.96 billion
Pivoting its business model after realizing there was more success in delivering produce than selling it, Saia (NASDAQ: SAIA) is a provider of freight transportation solutions.
Why Are We Wary of SAIA?
- 5.9% annual revenue growth over the last two years was slower than its industrials peers
- Weak free cash flow margin of -0.4% has deteriorated further over the last five years as its investments increased
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Saia is trading at $334.94 per share, or 32.4x forward P/E. To fully understand why you should be careful with SAIA, check out our full research report (it’s free).
Rockwell Automation (ROK)
Market Cap: $39.87 billion
One of the first companies to address industrial automation, Rockwell Automation (NYSE: ROK) sells products that help customers extract more efficiency from their machinery.
Why Are We Hesitant About ROK?
- 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
- Earnings per share have dipped by 1.5% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Eroding returns on capital suggest its historical profit centers are aging
Rockwell Automation’s stock price of $355.50 implies a valuation ratio of 29.1x forward P/E. Check out our free in-depth research report to learn more about why ROK doesn’t pass our bar.
One Industrials Stock to Buy:
EMCOR (EME)
Market Cap: $32.34 billion
Through its network of over 70 subsidiaries, EMCOR (NYSE: EME) provides electrical, mechanical, and building construction and services
Why Do We Love EME?
- Impressive 16.2% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Returns on capital are climbing as management makes more lucrative bets
At $737.27 per share, EMCOR trades at 27x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
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