Whether you see them or not, industrials businesses play a crucial part in our daily activities. 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 23.7% for the sector - higher than the S&P 500’s 16.8% return.
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. On that note, here is one industrials stock boasting a durable advantage and two that may face trouble.
Two Industrials Stocks to Sell:
MasTec (MTZ)
Market Cap: $15.48 billion
Involved in the 1996 Olympic Games MasTec (NYSE: MTZ) is an infrastructure construction company that specializes in the telecommunications, energy, and utility industries.
Why Does MTZ Fall Short?
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 13.1%
- Annual earnings per share growth of 2.1% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- 3.8 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
MasTec is trading at $201 per share, or 30.5x forward P/E. Read our free research report to see why you should think twice about including MTZ in your portfolio.
MDU Resources (MDU)
Market Cap: $3.29 billion
Founded to provide electricity to towns in Minnesota, MDU Resources (NYSE: MDU) provides products and services in the utilities and construction materials industries.
Why Are We Out on MDU?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 37.6% annually over the last five years
- Earnings per share have dipped by 9.9% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate
At $16.09 per share, MDU Resources trades at 15.9x forward P/E. Dive into our free research report to see why there are better opportunities than MDU.
One Industrials Stock to Watch:
Granite Construction (GVA)
Market Cap: $4.80 billion
Having played a role in the construction of the Hoover Dam, Granite Construction (NYSE: GVA) is a provider of infrastructure solutions for roads, bridges, and other projects.
Why Are We Positive On GVA?
- Annual revenue growth of 11.9% over the past two years was outstanding, reflecting market share gains this cycle
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 42% outpaced its revenue gains
- Historical investments are beginning to pay off as its returns on capital are growing
Granite Construction’s stock price of $109.60 implies a valuation ratio of 17.8x forward EV-to-EBITDA. Is now the right time to buy? See for yourself in our full research report, it’s free.
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