Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the market seems confused about where we could go next. This uncertainty has led to a flat return for the industry over the past six months while the S&P 500 was up 6.4%.

The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Keeping that in mind, here is one industrials stock boasting a durable advantage and two we’re passing on.

Two Industrials Stocks to Sell:

KB Home (KBH)

Market Cap: $4.56 billion

The first homebuilder to be listed on the NYSE, KB Home (NYSE: KB) is a homebuilding company targeting the first-time home buyer and move-up buyer markets.

Why Do We Think Twice About KBH?

1. Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 25.5% declines over the past two years
2. Anticipated sales growth of 3.2% for the next year implies demand will be shaky
3. Earnings per share have contracted by 4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance

KB Home’s stock price of $63.19 implies a valuation ratio of 7.2x forward price-to-earnings. To fully understand why you should be careful with KBH, check out our full research report (it’s free).

Gates Industrial Corporation (GTES)

Market Cap: $5.47 billion

Helping create one of the most memorable moments for the iconic “Jurassic Park” film, Gates (NYSE: GTES) offers power transmission and fluid transfer equipment for various industries.

Why Are We Wary of GTES?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Estimated sales for the next 12 months are flat and imply a softer demand environment
3. Low returns on capital reflect management’s struggle to allocate funds effectively

Gates Industrial Corporation is trading at $21.70 per share, or 14.3x forward price-to-earnings. Check out our free in-depth research report to learn more about why GTES doesn’t pass our bar.

One Industrials Stock to Watch:

Watts Water Technologies (WTS)

Market Cap: $7.17 billion

Founded in 1874, Watts Water (NYSE: WTS) specializes in manufacturing water products and systems for residential, commercial, and industrial applications globally.

Why Are We Positive On WTS?

1. Offerings are difficult to replicate at scale and result in a premier gross margin of 44.7%
2. Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
3. Share repurchases over the last five years enabled its annual earnings per share growth of 16.8% to outpace its revenue gains

At $215.49 per share, Watts Water Technologies trades at 24x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.