Even if they go mostly unnoticed, industrial businesses are the backbone of our country. 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 8% over the past six months. This performance is a noticeable divergence from the S&P 500’s 8.2% return.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Taking that into account, here are two resilient industrials stocks at the top of our wish list and one we’re passing on.
One industrials stock to sell:
Goodyear (GT)
Market cap: $1.27 billion
With its iconic blimp floating above major sporting events since 1925, Goodyear (NASDAQ: GT) is one of the world's largest tire manufacturers, producing and selling tires for automobiles, trucks, aircraft, and other vehicles, along with related services.
Why Do We Pass on GT?
- Annual sales declines of 4.5% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share fell by 17.7% annually over the last five years while its revenue grew, partly because it diluted shareholders
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
Goodyear is trading at $4.38 per share, or 0.1x forward price-to-sales. Check out our free in-depth research report to learn more about why GT doesn’t pass our bar.
Two industrials stocks to watch:
Comfort Systems (FIX)
Market cap: $47 billion
Formed through the merger of 12 companies, Comfort Systems (NYSE: FIX) provides mechanical and electrical contracting services.
Why Are We Bullish on FIX?
- Demand is greater than supply as the company’s 60.2% average backlog growth over the past two years shows it’s securing new contracts and accumulating more orders than it can fulfill
- Free cash flow margin increased by 15.4 percentage points over the last five years, giving the company more capital to invest or return to shareholders
- Rising returns on capital show management is finding more attractive investment opportunities
Comfort Systems’s stock price of $1,335 implies a valuation ratio of 20.9x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Applied Industrial (AIT)
Market cap: $10.92 billion
Formerly called The Ohio Ball Bearing Company, Applied Industrial (NYSE: AIT) distributes industrial products–everything from power tools to industrial valves–and services to a wide variety of industries.
Why Is AIT on Our Radar?
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 22.2% exceeded its revenue gains over the last five years
- Free cash flow margin jumped by 4.7 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
At $299.35 per share, Applied Industrial trades at 24.2x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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