Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Sure, they are at the whim of macroeconomic factors that influence capital spending (like interest rates), but the industry has held its ground over the past six months as its 11.2% return was almost identical to 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 are three industrials stocks we’re swiping left on.
Ryder (R)
Market Cap: $6.56 billion
As one of the first companies to introduce the idea of leasing trucks, Ryder (NYSE: R) provides rental vehicles to businesses and delivers packages directly to homes or businesses.
Why Do We Pass on R?
- Sizable revenue base leads to growth challenges as its 3.5% annual revenue increases over the last two years fell short of other industrials companies
- Earnings per share have contracted by 4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.8 percentage points
Ryder is trading at $163.24 per share, or 11.6x forward P/E. Dive into our free research report to see why there are better opportunities than R.
Carrier Global (CARR)
Market Cap: $42.41 billion
Founded by the inventor of air conditioning, Carrier Global (NYSE: CARR) manufactures heating, ventilation, air conditioning, and refrigeration products.
Why Should You Sell CARR?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Efficiency has decreased over the last five years as its operating margin fell by 4.2 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $50.68 per share, Carrier Global trades at 17.7x forward P/E. To fully understand why you should be careful with CARR, check out our full research report (it’s free for active Edge members).
Gates Industrial Corporation (GTES)
Market Cap: $5.47 billion
Helping create one of the most memorable moments for the iconic “Jurassic Park” film, Gates (NYSE: GTES) offers power transmission and fluid transfer equipment for various industries.
Why Does GTES Fall Short?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Estimated sales growth of 3.6% for the next 12 months is soft and implies weaker demand
- Low returns on capital reflect management’s struggle to allocate funds effectively
Gates Industrial Corporation’s stock price of $21.47 implies a valuation ratio of 13.6x forward P/E. Check out our free in-depth research report to learn more about why GTES doesn’t pass our bar.
Stocks We Like More
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