Whether you see them or not, industrials businesses play a crucial part in our daily activities. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 23.7% gain over the past six months, beating the S&P 500 by 13.2 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. With that said, here are three industrials stocks we’re swiping left on.
MYR Group (MYRG)
Market Cap: $2.91 billion
Constructing electrical and phone lines in the American Midwest dating back to the 1890s, MYR Group (NASDAQ: MYRG) is a specialty contractor in the electrical construction industry.
Why Should You Dump MYRG?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 2.4% declines over the past two years
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 4.6% annually
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $185.50 per share, MYR Group trades at 26x forward P/E. Dive into our free research report to see why there are better opportunities than MYRG.
Landstar (LSTR)
Market Cap: $4.59 billion
Covering billions of miles throughout North America, Landstar (NASDAQ: LSTR) is a transportation company specializing in freight and last-mile delivery services.
Why Do We Think LSTR Will Underperform?
- Sales tumbled by 12.7% annually over the last two years, showing market trends are working against its favor during this cycle
- Earnings per share have contracted by 27.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Diminishing returns on capital suggest its earlier profit pools are drying up
Landstar’s stock price of $132.33 implies a valuation ratio of 23.8x forward P/E. Read our free research report to see why you should think twice about including LSTR in your portfolio.
Silgan Holdings (SLGN)
Market Cap: $5.02 billion
Established in 1987, Silgan Holdings (NYSE: SLGN) is a supplier of rigid packaging for consumer goods products, specializing in metal containers, closures, and plastic packaging.
Why Do We Steer Clear of SLGN?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- High input costs result in an inferior gross margin of 16.9% that must be offset through higher volumes
- Poor free cash flow margin of 1.5% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Silgan Holdings is trading at $46.92 per share, or 11x forward P/E. To fully understand why you should be careful with SLGN, check out our full research report (it’s free).
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