Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Unfortunately, this role also comes with a demand profile tethered to the ebbs and flows of the broader economy, and investors seem to be forecasting a downturn - over the past six months, the industry has pulled back by 11.4%. This performance was worse than the S&P 500’s 2.1% loss.

Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Taking that into account, here is one industrials stock poised to generate sustainable market-beating returns and two we’re steering clear of.

Two Industrials Stocks to Sell:

A. O. Smith (AOS)

Market Cap: $9.54 billion

Credited with the invention of the glass-lined water heater, A.O. Smith (NYSE: AOS) manufactures water heating and treatment products for various industries.

Why Are We Wary of AOS?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.8%
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.5 percentage points

At $67.12 per share, A. O. Smith trades at 17.4x forward P/E. To fully understand why you should be careful with AOS, check out our full research report (it’s free).

Hillman (HLMN)

Market Cap: $1.47 billion

Established when Max Hillman purchased a franchise operation, Hillman (NASDAQ: HLMN) designs, manufactures, and sells industrial equipment and systems for various sectors.

Why Does HLMN Give Us Pause?

1. Sales stagnated over the last two years and signal the need for new growth strategies
2. Poor expense management has led to an operating margin of 3.7% that is below the industry average
3. Underwhelming 4% return on capital reflects management’s difficulties in finding profitable growth opportunities

Hillman’s stock price of $7.51 implies a valuation ratio of 13.1x forward P/E. If you’re considering HLMN for your portfolio, see our FREE research report to learn more.

One Industrials Stock to Watch:

Waste Connections (WCN)

Market Cap: $50.63 billion

Operating a network of municipal solid waste landfills in the U.S. and Canada, Waste Connections (NYSE: WCN) is North America's third-largest waste management company providing collection, disposal, and recycling services.

Why Is WCN Interesting?

1. Annual revenue growth of 10.5% over the past five years was outstanding, reflecting market share gains this cycle
2. Operating margin expanded by 4.1 percentage points over the last five years as it scaled and became more efficient
3. Robust free cash flow margin of 15.2% gives it many options for capital deployment

Waste Connections is trading at $195.93 per share, or 36.2x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free.