Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. 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 22.1% return over the past six months has topped the S&P 500 by 11.5 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 resilient industrials stock at the top of our wish list and two we’re steering clear of.
Two Industrials Stocks to Sell:
WESCO (WCC)
Market Cap: $13.81 billion
Based in Pittsburgh, WESCO (NYSE: WCC) provides electrical, industrial, and communications products and augments them with services such as supply chain management.
Why Does WCC Give Us Pause?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Poor free cash flow margin of 1.6% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
WESCO’s stock price of $283.93 implies a valuation ratio of 17.6x forward P/E. Dive into our free research report to see why there are better opportunities than WCC.
Schneider (SNDR)
Market Cap: $5.22 billion
Employing thousands of drivers across the country to make deliveries, Schneider (NYSE: SNDR) makes full truckload and intermodal deliveries regionally and across borders.
Why Do We Pass on SNDR?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 10.2% annually while its revenue grew
- Waning returns on capital imply its previous profit engines are losing steam
At $29.49 per share, Schneider trades at 31.7x forward P/E. If you’re considering SNDR for your portfolio, see our FREE research report to learn more.
One Industrials Stock to Watch:
BWX (BWXT)
Market Cap: $19.5 billion
Contributing components and materials to the famous Manhattan Project in the 1940s, BWX (NYSE: BWXT) is a manufacturer and service provider of nuclear components and fuel for government and commercial industries.
Why Is BWXT on Our Radar?
- Annual revenue growth of 13% over the last two years was superb and indicates its market share increased during this cycle
- Projected revenue growth of 15.2% for the next 12 months is above its two-year trend, pointing to accelerating demand
- Free cash flow margin expanded by 16.9 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
BWX is trading at $215.50 per share, or 50.7x 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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