Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. 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 21.7% return over the past six months has topped the S&P 500 by 6.1 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.
WillScot Mobile Mini (WSC)
Market Cap: $4.11 billion
Originally focusing on mobile offices for construction sites, WillScot (NASDAQ: WSC) provides ready-to-use temporary spaces, largely for longer-term lease.
Why Does WSC Fall Short?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Earnings per share have contracted by 10.1% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- 6.9 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
WillScot Mobile Mini is trading at $22.50 per share, or 13x forward P/E. Check out our free in-depth research report to learn more about why WSC doesn’t pass our bar.
Rockwell Automation (ROK)
Market Cap: $39.11 billion
One of the first companies to address industrial automation, Rockwell Automation (NYSE: ROK) sells products that help customers extract more efficiency from their machinery.
Why Are We Out on ROK?
- 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 decreased by more than its revenue over the last two years, showing each sale was less profitable
- Waning returns on capital imply its previous profit engines are losing steam
Rockwell Automation’s stock price of $346.56 implies a valuation ratio of 30.6x forward P/E. If you’re considering ROK for your portfolio, see our FREE research report to learn more.
Trimble (TRMB)
Market Cap: $19.7 billion
Playing a role in the construction of the Paris Grand, Trimble (NASDAQ: TRMB) offers geospatial devices and technology to the agriculture, construction, transportation, and logistics industries.
Why Do We Steer Clear of TRMB?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 13.7 percentage points
At $83.96 per share, Trimble trades at 26.7x forward P/E. Dive into our free research report to see why there are better opportunities than TRMB.
Stocks We Like More
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