Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. But their prominence also brings high exposure to the ups and downs of economic cycles. Luckily, their overall demand was steady over the past six months as the industry’s 18.3% return has closely followed the S&P 500.

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. With that said, here is one industrials stock boasting a durable advantage and two we’re swiping left on.

Two Industrials Stocks to Sell:

Greenbrier (GBX)

Market Cap: $1.33 billion

Having designed the industry’s first double-decker railcar in the 1980s, Greenbrier (NYSE: GBX) supplies the freight rail transportation industry with railcars and related services.

Why Does GBX Give Us Pause?

1. Declining unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
2. High input costs result in an inferior gross margin of 13.9% that must be offset through higher volumes
3. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

Greenbrier is trading at $43.11 per share, or 4.7x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why GBX doesn’t pass our bar.

Boise Cascade (BCC)

Market Cap: $2.59 billion

Formed through the merger of two lumber companies, Boise Cascade Company (NYSE: BCC) manufactures and distributes wood products and other building materials.

Why Do We Think BCC Will Underperform?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.3% annually over the last two years
2. 6.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Boise Cascade’s stock price of $69.83 implies a valuation ratio of 17x forward P/E. To fully understand why you should be careful with BCC, check out our full research report (it’s free for active Edge members).

One Industrials Stock to Buy:

EMCOR (EME)

Market Cap: $29.38 billion

Through its network of over 70 subsidiaries, EMCOR (NYSE: EME) provides electrical, mechanical, and building construction and services

Why Is EME a Top Pick?

1. Annual revenue growth of 15.9% over the past two years was outstanding, reflecting market share gains this cycle
2. Share repurchases over the last two years enabled its annual earnings per share growth of 47.4% to outpace its revenue gains
3. Improving returns on capital reflect management’s ability to monetize investments

At $663.98 per share, EMCOR trades at 24.3x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.

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