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 21.6% gain over the past six months, beating the S&P 500 by 8.3 percentage points.
Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. With that said, here are two industrials stocks we think can generate sustainable market-beating returns and one best left ignored.
One Industrials Stock to Sell:
Stanley Black & Decker (SWK)
Market Cap: $11.68 billion
With an iconic “STANLEY” logo which has remained virtually unchanged for over a century, Stanley Black & Decker (NYSE: SWK) is a manufacturer primarily catering to the tool and outdoor equipment industry.
Why Is SWK Not Exciting?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Earnings per share have contracted by 15.4% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
At $75.20 per share, Stanley Black & Decker trades at 13.9x forward P/E. Dive into our free research report to see why there are better opportunities than SWK.
Two Industrials Stocks to Buy:
Vertiv (VRT)
Market Cap: $142.5 billion
Formerly part of Emerson Electric, Vertiv (NYSE: VRT) manufactures and services infrastructure technology products for data centers and communication networks.
Why Will VRT Outperform?
- Core business can prosper without any help from acquisitions as its organic revenue growth averaged 23.7% over the past two years
- Free cash flow margin grew by 22.4 percentage points over the last five years, giving the company more chips to play with
- Returns on capital are climbing as management makes more lucrative bets
Vertiv is trading at $369.13 per share, or 55x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
Hubbell (HUBB)
Market Cap: $25.36 billion
A respected player in the electrical segment, Hubbell (NYSE: HUBB) manufactures electronic products for the construction, industrial, utility, and telecommunications markets.
Why Should You Buy HUBB?
- Annual revenue growth of 10.2% over the last five years beat the sector average and underscores the unique value of its offerings
- Share buybacks catapulted its annual earnings per share growth to 19.7%, which outperformed its revenue gains over the last five years
- Free cash flow margin increased by 7.2 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Hubbell’s stock price of $480.93 implies a valuation ratio of 23.8x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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