Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 22.1% gain over the past six months, beating the S&P 500 by 6.6 percentage points.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. On that note, here are three industrials stocks that may face trouble.
Owens Corning (OC)
Market Cap: $12.09 billion
Credited with the discovery of fiberglass, Owens Corning (NYSE: OC) supplies building and construction materials to the United States and international markets.
Why Do We Think Twice About OC?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Free cash flow margin shrank by 7.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Diminishing returns on capital suggest its earlier profit pools are drying up
Owens Corning is trading at $144.58 per share, or 10.4x forward P/E. Read our free research report to see why you should think twice about including OC in your portfolio.
Vontier (VNT)
Market Cap: $6.30 billion
A spin-off of a spin-off, Vontier (NYSE: VNT) provides electronic products and systems to the transportation, automotive, and manufacturing sectors.
Why Do We Steer Clear of VNT?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Free cash flow margin shrank by 7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $42.92 per share, Vontier trades at 13.1x forward P/E. Check out our free in-depth research report to learn more about why VNT doesn’t pass our bar.
John Bean (JBTM)
Market Cap: $7.17 billion
Tracing back to its invention of the mechanical milk bottle filler in 1884, John Bean (NYSE: JBT) designs, manufactures, and sells equipment used for food processing and aviation.
Why Are We Cautious About JBTM?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 6.1 percentage points
- ROIC of 6.8% reflects management’s challenges in identifying attractive investment opportunities
John Bean’s stock price of $135.16 implies a valuation ratio of 20.6x forward P/E. To fully understand why you should be careful with JBTM, check out our full research report (it’s free).
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