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 21.8% return over the past six months has topped the S&P 500 by 5.8 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. Keeping that in mind, here are two resilient industrials stocks at the top of our wish list and one best left ignored.
One Industrials Stock to Sell:
3M (MMM)
Market Cap: $81.53 billion
Producers of the first asthma inhaler, 3M Company (NYSE: MMM) is a global conglomerate known for products in industries like healthcare, safety, electronics, and consumer goods.
Why Is MMM Risky?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Earnings per share have dipped by 2.2% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
3M’s stock price of $152.10 implies a valuation ratio of 19.1x forward P/E. Dive into our free research report to see why there are better opportunities than MMM.
Two Industrials Stocks to Watch:
CACI (CACI)
Market Cap: $10.55 billion
Founded to commercialize SIMSCRIPT, CACI International (NYSE: CACI) offers defense, intelligence, and IT solutions to support national security and government transformation efforts.
Why Do We Like CACI?
- Sales pipeline is in good shape as its backlog averaged 11.6% growth over the past two years
- Forecasted revenue growth of 8.4% for the next 12 months indicates its momentum over the last two years is sustainable
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
At $479.62 per share, CACI trades at 17.6x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Leonardo DRS (DRS)
Market Cap: $10.73 billion
Developing submarine detection systems for the U.S. Navy, Leonardo DRS (NASDAQ: DRS) is a provider of defense systems, electronics, and military support services.
Why Is DRS Interesting?
- Annual revenue growth of 13.6% over the past two years was outstanding, reflecting market share gains this cycle
- Backlog has averaged 50.1% growth over the past two years, showing it has a pipeline of unfulfilled orders that will support revenue in the future
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 19.2% over the last two years outstripped its revenue performance
Leonardo DRS is trading at $41.14 per share, or 35.2x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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