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 12.8% gain over the past six months, beating the S&P 500 by 10.3 percentage points.
Regardless of these results, investors should tread carefully. The diversity of companies in this space means that not all are created equal or well-positioned for the inescapable downturn. With that said, here is one resilient industrials stock at the top of our wish list and two we’re steering clear of.
Two Industrials Stocks to Sell:
Luxfer (LXFR)
Market Cap: $348.5 million
With its magnesium alloys used in the construction of the famous Spirit of St. Louis aircraft, Luxfer (NYSE: LXFR) offers specialized materials, components, and gas containment devices to various industries.
Why Should You Sell LXFR?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.6% annually over the last two years
- Projected sales decline of 6.5% over the next 12 months indicates demand will continue deteriorating
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 2.3% annually
Luxfer’s stock price of $13.08 implies a valuation ratio of 11.7x forward P/E. To fully understand why you should be careful with LXFR, check out our full research report (it’s free).
Graphic Packaging Holding (GPK)
Market Cap: $2.86 billion
Founded in 1991, Graphic Packaging (NYSE: GPK) is a provider of paper-based packaging solutions for a wide range of products.
Why Do We Pass on GPK?
- Sales tumbled by 4.4% annually over the last two years, showing market trends are working against its favor during this cycle
- Forecasted revenue decline of 2.1% for the upcoming 12 months implies demand will fall even further
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
Graphic Packaging Holding is trading at $9.68 per share, or 10.9x forward P/E. Read our free research report to see why you should think twice about including GPK in your portfolio.
One Industrials Stock to Watch:
Distribution Solutions (DSGR)
Market Cap: $1.26 billion
Founded in 1952, Distribution Solutions (NASDAQ: DSGR) provides supply chain solutions and distributes industrial, safety, and maintenance products to various industries.
Why Are We Fans of DSGR?
- Annual revenue growth of 39.4% over the past four years was outstanding, reflecting market share gains this cycle
- Strong unit economics and 33.5% gross margin provide ample funds for marketing and new product development
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
At $27.32 per share, Distribution Solutions trades at 18.3x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Stocks We Like Even More
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