Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 14.8% gain over the past six months, beating the S&P 500 by 3.1 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 poised to generate sustainable market-beating returns and two we’re steering clear of.
Two Industrials Stocks to Sell:
Albany (AIN)
Market Cap: $1.48 billion
Founded in 1895, Albany (NYSE: AIN) is a global textiles and materials processing company, specializing in machine clothing for paper mills and engineered composite structures for aerospace and other industries.
Why Do We Think AIN Will Underperform?
- Annual revenue growth of 2.5% over the last two years was below our standards for the industrials sector
- Free cash flow margin dropped by 9.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Albany is trading at $51.56 per share, or 18.1x forward P/E. Read our free research report to see why you should think twice about including AIN in your portfolio.
Union Pacific (UNP)
Market Cap: $138.5 billion
Part of the transcontinental railroad project, Union Pacific (NYSE: UNP) is a freight transportation company that operates a major railroad network.
Why Are We Out on UNP?
- Weak unit sales over the past two years suggest it might have to lower prices to accelerate growth
- Projected sales growth of 2.2% for the next 12 months suggests sluggish demand
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.3 percentage points
Union Pacific’s stock price of $233.74 implies a valuation ratio of 19.1x forward P/E. Dive into our free research report to see why there are better opportunities than UNP.
One Industrials Stock to Buy:
Axon (AXON)
Market Cap: $46.38 billion
Providing body cameras and tasers for first responders, AXON (NASDAQ: AXON) develops technology solutions and weapons products for military, law enforcement, and civilians.
Why Do We Love AXON?
- Unit sales averaged 26.3% growth over the past two years and imply healthy demand for its products
- Operating margin expanded by 14.4 percentage points over the last five years as it scaled and became more efficient
- Earnings per share have massively outperformed its peers over the last two years, increasing by 35.2% annually
At $583.50 per share, Axon trades at 85.5x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
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