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 22% gain over the past six months, beating the S&P 500 by 12.2 percentage points.

Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. Keeping that in mind, here are two industrials stocks boasting durable advantages and one we’re steering clear of.

One Industrials Stock to Sell:

Perma-Fix (PESI)

Market Cap: $280.2 million

Tackling hazardous waste challenges since 1990, Perma-Fix (NASDAQ: PESI) provides environmental waste treatment services.

Why Are We Out on PESI?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 9.4% annually over the last five years
2. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

Perma-Fix’s stock price of $15.14 implies a valuation ratio of 515x forward P/E. Read our free research report to see why you should think twice about including PESI in your portfolio.

Two Industrials Stocks to Watch:

Xylem (XYL)

Market Cap: $34.02 billion

Formed through a spinoff, Xylem (NYSE: XYL) manufactures and services engineered products across a wide variety of applications primarily in the water sector.

Why Could XYL Be a Winner?

1. Annual revenue growth of 14.8% over the last two years was superb and indicates its market share increased during this cycle
2. Offerings are difficult to replicate at scale and result in a stellar gross margin of 37.7%
3. Earnings growth has massively outpaced its peers over the last five years as its EPS has compounded at 17.7% annually

At $140.76 per share, Xylem trades at 25.6x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

CACI (CACI)

Market Cap: $13.36 billion

Founded to commercialize SIMSCRIPT, CACI International (NYSE: CACI) offers defense, intelligence, and IT solutions to support national security and government transformation efforts.

Why Are We Positive On CACI?

1. Backlog has averaged 11.5% growth over the past two years, showing it has a pipeline of unfulfilled orders that will support revenue in the future
2. Forecasted revenue growth of 10.3% for the next 12 months indicates its momentum over the last two years is sustainable
3. Share repurchases have amplified shareholder returns as its annual earnings per share growth of 22.2% exceeded its revenue gains over the last two years

CACI is trading at $612.09 per share, or 20.7x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

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