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 36.3% return over the past six months has topped the S&P 500 by 13.1 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. Keeping that in mind, here is one industrials stock boasting a durable advantage and two we’re swiping left on.
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 Does NWPX Give Us Pause?
- 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
At $50.34 per share, Northwest Pipe trades at 14.2x forward P/E. Check out our free in-depth research report to learn more about why NWPX doesn’t pass our bar.
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 Are We Wary of GNK?
- Demand for its offerings was relatively low as its number of owned vessels has underwhelmed
- 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 $15.85 implies a valuation ratio of 17.8x forward P/E. Dive into our free research report to see why there are better opportunities than GNK.
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 Are We Backing VRT?
- 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 increased by 5.6 percentage points over the last five years, giving the company more capital to invest or return to shareholders
- Rising returns on capital show management is finding more attractive investment opportunities
Vertiv is trading at $180.97 per share, or 39.2x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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