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 21.4% gain over the past six months, beating the S&P 500 by 6.5 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. Taking that into account, here is one resilient industrials stock at the top of our wish list and two best left ignored.
Two Industrials Stocks to Sell:
Sanmina (SANM)
Market Cap: $6.03 billion
Founded in 1980, Sanmina (NASDAQ: SANM) is an electronics manufacturing services company offering end-to-end solutions for various industries.
Why Are We Out on SANM?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6% annually over the last two years
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 8.2%
- Earnings per share have contracted by 3.8% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
Sanmina is trading at $113 per share, or 16.4x forward P/E. Read our free research report to see why you should think twice about including SANM in your portfolio.
Schneider (SNDR)
Market Cap: $3.78 billion
Employing thousands of drivers across the country to make deliveries, Schneider (NYSE: SNDR) makes full truckload and intermodal deliveries regionally and across borders.
Why Should You Dump SNDR?
- Annual sales declines of 4.6% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share have contracted by 8.8% annually over the last five 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
Schneider’s stock price of $21.59 implies a valuation ratio of 19.8x forward P/E. Check out our free in-depth research report to learn more about why SNDR doesn’t pass our bar.
One Industrials Stock to Buy:
Verra Mobility (VRRM)
Market Cap: $3.89 billion
Aiming to wrap technology and data around a historically manual and paper-based industry, Verra Mobility (NYSE: VRRM) is a leading provider of smart mobility technology to address tolls and violations, title and registration services, as well as safety and traffic enforcement.
Why Are We Bullish on VRRM?
- Annual revenue growth of 15.7% over the past five years was outstanding, reflecting market share gains this cycle
- Offerings are difficult to replicate at scale and result in a best-in-class gross margin of 62.2%
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its growing cash flow gives it even more resources to deploy
At $24.03 per share, Verra Mobility trades at 17.2x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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