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 30.9% gain over the past six months, beating the S&P 500 by 9.7 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. With that said, here are three industrials stocks we’re steering clear of.

Nordson (NDSN)

Market Cap: $13.11 billion

Founded in 1954, Nordson Corporation (NASDAQ: NDSN) manufactures dispensing equipment and industrial adhesives, sealants and coatings.

Why Do We Think Twice About NDSN?

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. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 1.2% annually
3. Waning returns on capital imply its previous profit engines are losing steam

Nordson’s stock price of $233.30 implies a valuation ratio of 21.4x forward P/E. Read our free research report to see why you should think twice about including NDSN in your portfolio.

Worthington (WOR)

Market Cap: $2.79 billion

Founded by a steel salesman, Worthington (NYSE: WOR) specializes in steel processing, pressure cylinders, and engineered cabs for commercial markets.

Why Should You Dump WOR?

1. Sales tumbled by 16.2% annually over the last five years, showing market trends are working against its favor during this cycle
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

At $56.16 per share, Worthington trades at 15.2x forward P/E. Dive into our free research report to see why there are better opportunities than WOR.

RXO (RXO)

Market Cap: $2.89 billion

With access to millions of trucks, RXO (NYSE: RXO) offers full-truckload, less-than-truckload, and last-mile deliveries.

Why Are We Wary of RXO?

1. Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 5.4 percentage points
2. Earnings per share fell by 61.7% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
3. Low returns on capital reflect management’s struggle to allocate funds effectively

RXO is trading at $17 per share, or 79.2x forward P/E. If you’re considering RXO for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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