In This Article:
Whether you see them or not, industrials businesses play a crucial part in our daily activities. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the market seems to be baking in a prolonged downturn as the industry has shed 5.7% over the past six months. This drop was disappointing since the S&P 500 held its ground.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Keeping that in mind, here is one industrials stock poised to generate sustainable market-beating returns and two we’re steering clear of.
Two Industrials Stocks to Sell:
Kirby (KEX)
Market Cap: $6.19 billion
Transporting goods along all U.S. coasts, Kirby (NYSE:KEX) provides inland and coastal marine transportation services.
Why Do We Think Twice About KEX?
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Annual revenue growth of 3.4% over the last five years was below our standards for the industrials sector
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Free cash flow margin dropped by 10.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
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Below-average returns on capital indicate management struggled to find compelling investment opportunities
Kirby is trading at $109 per share, or 16.2x forward P/E. Check out our free in-depth research report to learn more about why KEX doesn’t pass our bar.
U-Haul (UHAL)
Market Cap: $11.59 billion
Founded by a husband and wife duo, U-Haul (NYSE:UHAL) is a provider of rental trucks and storage facilities.
Why Should You Sell UHAL?
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Sales tumbled by 1.6% annually over the last two years, showing market trends are working against its favor during this cycle
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Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 38.3 percentage points
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Waning returns on capital imply its previous profit engines are losing steam
At $65.12 per share, U-Haul trades at 2.2x trailing 12-month price-to-sales. To fully understand why you should be careful with UHAL, check out our full research report (it’s free).
One Industrials Stock to Watch:
Watts Water Technologies (WTS)
Market Cap: $8.15 billion
Founded in 1874, Watts Water (NYSE:WTS) specializes in manufacturing water products and systems for residential, commercial, and industrial applications globally.
Why Do We Watch WTS?
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Superior product capabilities and pricing power result in a top-tier gross margin of 45%
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Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
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Share repurchases over the last five years enabled its annual earnings per share growth of 16.9% to outpace its revenue gains