Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 21.7% for the sector - higher than the S&P 500’s 15.9% return.
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. Keeping that in mind, here are three industrials stocks we’re swiping left on.
Trinity (TRN)
Market Cap: $2.28 billion
Operating under the trade name TrinityRail, Trinity (NYSE: TRN) is a provider of railcar products and services in North America.
Why Should You Sell TRN?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 2% annually over the last five years
- Forecasted revenue decline of 18.5% for the upcoming 12 months implies demand will fall off a cliff
- Free cash flow margin dropped by 9.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Trinity’s stock price of $28.15 implies a valuation ratio of 6.2x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why TRN doesn’t pass our bar.
Astec (ASTE)
Market Cap: $1.06 billion
Inventing the first ever double-barrel hot-mix asphalt plant, Astec (NASDAQ: ASTE) provides machines and equipment for building roads, processing raw materials, and producing concrete.
Why Is ASTE Not Exciting?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 28.2% decline in its backlog
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 23.8%
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
At $46.41 per share, Astec trades at 17.9x forward P/E. If you’re considering ASTE for your portfolio, see our FREE research report to learn more.
Toll Brothers (TOL)
Market Cap: $13.83 billion
Started by two brothers who started by building and selling just one home in Pennsylvania, today Toll Brothers (NYSE: TOL) is a luxury homebuilder across the United States.
Why Does TOL Fall Short?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 6.3% declines over the past two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.5 percentage points
Toll Brothers is trading at $143.81 per share, or 10.2x forward P/E. To fully understand why you should be careful with TOL, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
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