Whether you see them or not, industrials businesses play a crucial part in our daily activities. 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 12.4% return over the past six months has topped the S&P 500 by 7.4 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. With that said, here is one industrials stock poised to generate sustainable market-beating returns and two we’re steering clear of.
Two Industrials Stocks to Sell:
Albany (AIN)
Market Cap: $1.60 billion
Founded in 1895, Albany (NYSE: AIN) is a global textiles and materials processing company, specializing in machine clothing for paper mills and engineered composite structures for aerospace and other industries.
Why Should You Dump AIN?
- 1.5% annual revenue growth over the last two years was slower than its industrials peers
- Free cash flow margin dropped by 10.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Albany’s stock price of $56.48 implies a valuation ratio of 23.1x forward P/E. To fully understand why you should be careful with AIN, check out our full research report (it’s free).
Sunrun (RUN)
Market Cap: $3.05 billion
Helping homeowners use solar energy to power their homes, Sunrun (NASDAQ: RUN) provides residential solar electricity, specializing in panel installation and leasing services.
Why Is RUN Not Exciting?
- Historical operating margin losses point to an inefficient cost structure
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- 23× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Sunrun is trading at $12.88 per share, or 30.3x forward P/E. Read our free research report to see why you should think twice about including RUN in your portfolio.
One Industrials Stock to Buy:
Woodward (WWD)
Market Cap: $21.91 billion
Initially designing controls for water wheels in the early 1900s, Woodward (NASDAQ: WWD) designs, services, and manufactures energy control products and optimization solutions.
Why Is WWD a Top Pick?
- Annual revenue growth of 10.9% over the last two years was superb and indicates its market share increased during this cycle
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Earnings growth has trumped its peers over the last two years as its EPS has compounded at 29.4% annually
At $365.22 per share, Woodward trades at 41.2x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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