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.
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. Keeping that in mind, here is one resilient industrials stock at the top of our wish list and two that may face trouble.
Two Industrials Stocks to Sell:
Itron (ITRI)
Market Cap: $3.92 billion
Founded by a small group of engineers who wanted to build a more efficient way to read utility meters, Itron (NASDAQ: ITRI) offers energy and water management products for the utility industry, municipalities, and industrial customers.
Why Are We Cautious About ITRI?
- Muted 1.7% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Estimated sales growth of 1.5% for the next 12 months implies demand will slow from its two-year trend
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $88.65 per share, Itron trades at 15x forward P/E. Read our free research report to see why you should think twice about including ITRI in your portfolio.
KB Home (KBH)
Market Cap: $3.52 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 Should You Dump KBH?
- Backlog has dropped by 28% on average over the past two years, suggesting it’s losing orders as competition picks up
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Diminishing returns on capital suggest its earlier profit pools are drying up
KB Home’s stock price of $56.15 implies a valuation ratio of 16.3x forward P/E. To fully understand why you should be careful with KBH, check out our full research report (it’s free).
One Industrials Stock to Buy:
Primoris (PRIM)
Market Cap: $9.36 billion
Listed on the NASDAQ in 2008, Primoris (NYSE: PRIM) builds, maintains, and upgrades infrastructure in the utility, energy, and civil construction industries.
Why Are We Bullish on PRIM?
- Impressive 15.1% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Earnings per share grew by 40.4% annually over the last two years and trumped its peers
- Free cash flow margin increased by 6 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Primoris is trading at $174.49 per share, or 29.1x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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