Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 20.5% gain over the past six months, beating the S&P 500 by 5.2 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. Keeping that in mind, here are three industrials stocks best left ignored.
Alamo (ALG)
Market Cap: $1.94 billion
Expanding its markets through acquisitions since its founding, Alamo (NSYE:ALG) designs, manufactures, and services vegetation management and infrastructure maintenance equipment for governmental, industrial, and agricultural use.
Why Does ALG Fall Short?
- Sales tumbled by 1.3% annually over the last two years, showing market trends are working against its favor during this cycle
- Gross margin of 25.5% reflects its high production costs
- Earnings per share have dipped by 5.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term
Alamo’s stock price of $160.37 implies a valuation ratio of 14.2x forward P/E. To fully understand why you should be careful with ALG, check out our full research report (it’s free for active Edge members).
Hillman (HLMN)
Market Cap: $1.73 billion
Established when Max Hillman purchased a franchise operation, Hillman (NASDAQ: HLMN) designs, manufactures, and sells industrial equipment and systems for various sectors.
Why Are We Wary of HLMN?
- Annual revenue growth of 1.9% over the last two years was below our standards for the industrials sector
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $8.73 per share, Hillman trades at 15.4x forward P/E. Check out our free in-depth research report to learn more about why HLMN doesn’t pass our bar.
Vulcan Materials (VMC)
Market Cap: $39.27 billion
Founded in 1909, Vulcan Materials (NYSE: VMC) is a producer of construction aggregates, primarily crushed stone, sand, and gravel.
Why Are We Cautious About VMC?
- Number of tons shipped has disappointed over the past two years, indicating weak demand for its offerings
- Estimated sales growth of 4% for the next 12 months is soft and implies weaker demand
- Gross margin of 25.2% reflects its high production costs
Vulcan Materials is trading at $297.24 per share, or 31.5x forward P/E. If you’re considering VMC for your portfolio, see our FREE research report to learn more.
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