Even if they go mostly unnoticed, industrial businesses are the backbone of our country. 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 21% return over the past six months has topped the S&P 500 by 10.5 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. Taking that into account, here are three industrials stocks we’re passing on.
Fluence Energy (FLNC)
Market Cap: $969.5 million
Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ: FLNC) helps store renewable energy sources with battery systems.
Why Is FLNC Not Exciting?
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 7.2%
- Free cash flow margin shrank by 6.4 percentage points over the last five years, suggesting the company stepped up its investments to maintain its competitive edge
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Fluence Energy is trading at $7.41 per share, or 102.1x forward P/E. Check out our free in-depth research report to learn more about why FLNC doesn’t pass our bar.
Expeditors (EXPD)
Market Cap: $16.36 billion
Expeditors (NYSE: EXPD) offers air and ocean freight as well as brokerage services.
Why Do We Steer Clear of EXPD?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.5% annually over the last two years
- Earnings per share have dipped by 4.4% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Eroding returns on capital suggest its historical profit centers are aging
At $120.54 per share, Expeditors trades at 22.9x forward P/E. Dive into our free research report to see why there are better opportunities than EXPD.
Tutor Perini (TPC)
Market Cap: $3.11 billion
Known for constructing the Philadelphia Eagles’ Stadium, Tutor Perini (NYSE: TPC) is a civil and building construction company offering diversified general contracting and design-build services.
Why Should You Dump TPC?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Issuance of new shares over the last five years caused its earnings per share to fall by 32.4% annually
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Tutor Perini’s stock price of $60 implies a valuation ratio of 23.1x forward P/E. If you’re considering TPC for your portfolio, see our FREE research report to learn more.
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