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 16.4% gain over the past six months, beating the S&P 500 by 3.5 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. Keeping that in mind, here are two resilient industrials stocks at the top of our wish list and one that may face trouble.
One Industrials Stock to Sell:
Fortune Brands (FBIN)
Market Cap: $6.07 billion
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE: FBIN) makes plumbing, security, and outdoor living products.
Why Should You Sell FBIN?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 10.4 percentage points
- Earnings per share fell by 5.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
At $50.44 per share, Fortune Brands trades at 12.6x forward P/E. To fully understand why you should be careful with FBIN, check out our full research report (it’s free for active Edge members).
Two Industrials Stocks to Watch:
Vicor (VICR)
Market Cap: $4.87 billion
Founded by a researcher at the Massachusetts Institute of Technology, Vicor (NASDAQ: VICR) provides electrical power conversion and delivery products for a range of industries.
Why Does VICR Catch Our Eye?
- Offerings and unique value proposition resonate with customers, as seen in its above-market 9.9% annual sales growth over the last five years
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 26.1% outpaced its revenue gains
- Free cash flow margin expanded by 21.8 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
Vicor’s stock price of $109.82 implies a valuation ratio of 55.6x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Trane Technologies (TT)
Market Cap: $87.31 billion
With low-pressure heating systems as its first product, Trane (NYSE: TT) designs, manufactures, and sells HVAC and refrigeration systems, the former to commercial and residential building customers and the latter to commercial truck manufacturers.
Why Are We Backing TT?
- Annual revenue growth of 11.1% over the last five years was superb and indicates its market share increased during this cycle
- Share buybacks catapulted its annual earnings per share growth to 21.4%, which outperformed its revenue gains over the last two years
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures, and its returns are growing as it capitalizes on even better market opportunities
Trane Technologies is trading at $394.06 per share, or 27.1x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
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