Whether you see them or not, industrials businesses play a crucial part in our daily activities. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the market seems convinced that demand will slow. Due to this bearish outlook, the industry has tumbled by 5.7% over the past six months. This performance was disheartening since the S&P 500 held steady.
Investors should tread carefully as timing cyclical companies is a challenging task, and any misstep can have you catching a falling knife. On that note, here are three industrials stocks best left ignored.
Terex (TEX)
Market Cap: $3.15 billion
With humble beginnings as a dump truck company, Terex (NYSE: TEX) today manufactures lifting and material handling equipment designed to move and hoist heavy goods and materials.
Why Is TEX Not Exciting?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings per share have dipped by 16.4% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Free cash flow margin shrank by 6.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Terex’s stock price of $47.01 implies a valuation ratio of 9.9x forward P/E. Read our free research report to see why you should think twice about including TEX in your portfolio.
Redwire (RDW)
Market Cap: $942.7 million
Based in Jacksonville, Florida, Redwire (NYSE: RDW) is a provider of systems and components used in space infrastructure.
Why Do We Think Twice About RDW?
- Issuance of new shares over the last four years caused its earnings per share to fall by 38.9% annually while its revenue grew
- Cash-burning history makes us doubt the long-term viability of its business model
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $12.02 per share, Redwire trades at 15.3x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than RDW.
XPO (XPO)
Market Cap: $15.09 billion
Owning a mobile game simulating freight operations for the Tour de France, XPO (NYSE: XPO) is a transportation company specializing in expedited shipping services.
Why Should You Sell XPO?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 10.7% annually over the last five years
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- 5.7 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
XPO is trading at $128.10 per share, or 31.5x forward P/E. If you’re considering XPO for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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