Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 17% for the sector - higher than the S&P 500’s 12.7% return.
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. On that note, here are three industrials stocks best left ignored.
Graco (GGG)
Market Cap: $13.71 billion
Founded in 1926, Graco (NYSE: GGG) is an industrial company specializing in the development and manufacturing of fluid-handling systems and products.
Why Is GGG Not Exciting?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Graco’s stock price of $82.68 implies a valuation ratio of 26.7x forward P/E. To fully understand why you should be careful with GGG, check out our full research report (it’s free for active Edge members).
Timken (TKR)
Market Cap: $5.94 billion
Established after the founder noticed the difficulty freight wagons had making sharp turns, Timken (NYSE: TKR) is a provider of industrial parts used across various sectors.
Why Should You Sell TKR?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Anticipated sales growth of 2.7% for the next year implies demand will be shaky
- Earnings per share have contracted by 11.8% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
At $85.27 per share, Timken trades at 14.8x forward P/E. Dive into our free research report to see why there are better opportunities than TKR.
Werner (WERN)
Market Cap: $1.81 billion
Conducting business in over a 100 countries, Werner (NASDAQ: WERN) offers full-truckload, less-than-truckload, and intermodal delivery services.
Why Are We Out on WERN?
- Annual sales declines of 5.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 55.8% annually
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Werner is trading at $30.29 per share, or 51.6x forward P/E. If you’re considering WERN for your portfolio, see our FREE research report to learn more.
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