Even if they go mostly unnoticed, industrial businesses are the backbone of our country. 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 are three industrials stocks best left ignored.
Atkore (ATKR)
Market Cap: $2.39 billion
Protecting the things that power our world, Atkore (NYSE: ATKR) designs and manufactures electrical safety products.
Why Do We Think ATKR Will Underperform?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- 7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $70.86 per share, Atkore trades at 13.4x forward P/E. Check out our free in-depth research report to learn more about why ATKR doesn’t pass our bar.
Advanced Energy (AEIS)
Market Cap: $9.71 billion
Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQ: AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.
Why Should You Sell AEIS?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 3.1 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
Advanced Energy’s stock price of $256.68 implies a valuation ratio of 32.6x forward P/E. If you’re considering AEIS for your portfolio, see our FREE research report to learn more.
Mobileye (MBLY)
Market Cap: $9.02 billion
With its EyeQ chips installed in over 200 million vehicles worldwide, Mobileye (NASDAQ: MBLY) develops advanced driver assistance systems and autonomous driving technologies that help vehicles detect and respond to road conditions.
Why Do We Pass on MBLY?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.7% annually over the last two years
- Earnings per share have dipped by 26.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Mobileye is trading at $11.07 per share, or 34.1x forward P/E. Dive into our free research report to see why there are better opportunities than MBLY.
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