Even if they go mostly unnoticed, industrial businesses are the backbone of our country. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 12.4% for the sector - higher than the S&P 500’s 5% return.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. On that note, here are three industrials stocks best left ignored.
Hudson Technologies (HDSN)
Market Cap: $269.7 million
Founded in 1991, Hudson Technologies (NASDAQ: HDSN) specializes in refrigerant services and solutions, providing refrigerant sales, reclamation, and recycling.
Why Are We Cautious About HDSN?
- Sales tumbled by 7.6% annually over the last two years, showing market trends are working against its favor during this cycle
- Sales were less profitable over the last two years as its earnings per share fell by 39.1% annually, worse than its revenue declines
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $6.36 per share, Hudson Technologies trades at 15.1x forward P/E. To fully understand why you should be careful with HDSN, check out our full research report (it’s free).
Lucid (LCID)
Market Cap: $2.28 billion
Founded by a former Tesla Vice President, Lucid Group (NASDAQ: LCID) designs, manufactures, and sells luxury electric vehicles with long-range capabilities.
Why Does LCID Worry Us?
- Negative 138% gross margin means it loses money on every sale and must pivot or scale quickly to survive
- Cash-burning history makes us doubt the long-term viability of its business model
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Lucid is trading at $6.30 per share, or 1x forward price-to-sales. Check out our free in-depth research report to learn more about why LCID doesn’t pass our bar.
Garrett Motion (GTX)
Market Cap: $3.85 billion
A key player in the transition to cleaner vehicles, Garrett Motion (NYSE: GTX) designs and manufactures turbochargers, air compressors, and electric motor technologies for vehicle manufacturers and industrial applications.
Why Do We Think Twice About GTX?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4% annually over the last two years
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.3%
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 19.8%
Garrett Motion’s stock price of $20.79 implies a valuation ratio of 11x forward P/E. If you’re considering GTX for your portfolio, see our FREE research report to learn more.
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