Whether you see them or not, industrials businesses play a crucial part in our daily activities. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 33.9% gain over the past six months, beating the S&P 500 by 11.1 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:
Northwest Pipe (NWPX)
Market Cap: $477.2 million
Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe (NASDAQ: NWPX) is a manufacturer of pipeline systems for water infrastructure.
Why Are We Hesitant About NWPX?
- Muted 5.9% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Gross margin of 17.6% reflects its high production costs
- Issuance of new shares over the last five years caused its earnings per share growth of 1% to lag its revenue gains
Northwest Pipe is trading at $49.42 per share, or 14.2x forward P/E. If you’re considering NWPX for your portfolio, see our FREE research report to learn more.
Genco (GNK)
Market Cap: $668.9 million
Headquartered in NYC, Genco (NYSE: GNK) is a shipping company that transports dry bulk cargo along worldwide maritime routes.
Why Is GNK Not Exciting?
- Sluggish trends in its owned vessels suggest customers aren’t adopting its solutions as quickly as the company hoped
- Earnings per share have contracted by 61.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 26.4 percentage points
Genco’s stock price of $16.37 implies a valuation ratio of 17.8x forward P/E. To fully understand why you should be careful with GNK, check out our full research report (it’s free for active Edge members).
One Industrials Stock to Buy:
Vertiv (VRT)
Market Cap: $64.54 billion
Formerly part of Emerson Electric, Vertiv (NYSE: VRT) manufactures and services infrastructure technology products for data centers and communication networks.
Why Will VRT Outperform?
- Average organic revenue growth of 19.6% over the past two years demonstrates its ability to expand independently without relying on acquisitions
- Free cash flow margin jumped by 5.6 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Rising returns on capital show management is finding more attractive investment opportunities
At $177 per share, Vertiv trades at 39.2x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free for active Edge members .
High-Quality Stocks for All Market Conditions
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