2 Industrials Stocks with Exciting Potential and 1 We Turn Down

July 21, 2025 at 00:38 AM EDT

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Even if they go mostly unnoticed, industrial businesses are the backbone of our country. 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 4.1%.

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. With that said, here are two industrials stocks we think can generate sustainable market-beating returns and one that may face trouble.

One IndustrialsStock to Sell:

Huntington Ingalls (HII)

Market Cap: $9.99 billion

Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE: HII) develops marine vessels and their mission systems and maintenance services.

Why Should You Sell HII?

Sales pipeline suggests its future revenue growth may not meet our standards as its average backlog growth of 1.8% for the past two years was weak
9.2 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
Waning returns on capital imply its previous profit engines are losing steam

Huntington Ingalls’s stock price of $257.50 implies a valuation ratio of 18x forward P/E. To fully understand why you should be careful with HII, check out our full research report (it’s free).

Two Industrials Stocks to Watch:

DXP (DXPE)

Market Cap: $1.56 billion

Founded during the emergence of Big Oil in Texas, DXP (NASDAQ: DXPE) provides pumps, valves, and other industrial components.

Why Could DXPE Be a Winner?

Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
Rising returns on capital show management is finding more attractive investment opportunities

At $101.30 per share, DXP trades at 18.1x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.

Leonardo DRS (DRS)

Market Cap: $12.8 billion

Developing submarine detection systems for the U.S. Navy, Leonardo DRS (NASDAQ: DRS) is a provider of defense systems, electronics, and military support services.

Why Should DRS Be on Your Watchlist?

Demand is greater than supply as the company’s 54.4% average backlog growth over the past two years shows it’s securing new contracts and accumulating more orders than it can fulfill
Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 17.5% outpaced its revenue gains
Free cash flow margin grew by 4.7 percentage points over the last five years, giving the company more chips to play with

Leonardo DRS is trading at $47.83 per share, or 44.2x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.

High-Quality Stocks for All Market Conditions

Trump’s April 2024 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today

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