Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. But their prominence also brings high exposure to the ups and downs of economic cycles. Luckily, the tide is turning in their favor as the industry’s 45.7% return over the past six months has topped the S&P 500 by 15 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 is one industrials stock poised to generate sustainable market-beating returns and two we’re swiping left on.
Two Industrials Stocks to Sell:
Karat Packaging (KRT)
Market Cap: $509.6 million
Founded as Lollicup, Karat Packaging (NASDAQ: KRT) distributes and manufactures environmentally-friendly disposable foodservice packaging solutions.
Why Are We Hesitant About KRT?
- Sales trends were unexciting over the last two years as its 4.2% annual growth was below the typical industrials company
- Issuance of new shares over the last two years caused its earnings per share to fall by 2.9% annually while its revenue grew
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Karat Packaging’s stock price of $25.36 implies a valuation ratio of 16.3x forward P/E. Dive into our free research report to see why there are better opportunities than KRT.
Trex (TREX)
Market Cap: $5.39 billion
Addressing the demand for aesthetically-pleasing and unique outdoor living spaces, Trex Company (NYSE: TREX) makes wood-alternative decking, railing, and patio furniture.
Why Does TREX Worry Us?
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 3.3 percentage points
- 5.4 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Diminishing returns on capital suggest its earlier profit pools are drying up
Trex is trading at $50.25 per share, or 20.9x forward P/E. Check out our free in-depth research report to learn more about why TREX doesn’t pass our bar.
One Industrials Stock to Watch:
Xylem (XYL)
Market Cap: $35.72 billion
Formed through a spinoff, Xylem (NYSE: XYL) manufactures and services engineered products across a wide variety of applications primarily in the water sector.
Why Are We Fans of XYL?
- Impressive 20.1% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Offerings are difficult to replicate at scale and result in a top-tier gross margin of 37.6%
- Earnings per share have massively outperformed its peers over the last two years, increasing by 15.9% annually
At $147.52 per share, Xylem trades at 28.8x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
Stocks We Like Even More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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