Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 12.9% for the sector - higher than the S&P 500’s 3.9% return.
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. Taking that into account, here are two industrials stocks we think can generate sustainable market-beating returns and one we’re steering clear of.
One Industrials Stock to Sell:
Greenbrier (GBX)
Market Cap: $1.52 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 Are We Cautious About GBX?
- Declining unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
- Gross margin of 14.1% reflects its high production costs
- Cash burn makes us question whether it can achieve sustainable long-term growth
Greenbrier’s stock price of $49.08 implies a valuation ratio of 0.6x forward price-to-sales. Check out our free in-depth research report to learn more about why GBX doesn’t pass our bar.
Two Industrials Stocks to Buy:
CSW (CSW)
Market Cap: $4.92 billion
With over two centuries of combined operations manufacturing and supplying, CSW (NYSE: CSW) offers special chemicals, coatings, sealants, and lubricants for various industries.
Why Are We Bullish on CSW?
- Market share has increased this cycle as its 21.2% annual revenue growth over the last five years was exceptional
- Earnings growth has trumped its peers over the last two years as its EPS has compounded at 20.5% annually
- CSW is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its rising cash conversion increases its margin of safety
CSW is trading at $298.95 per share, or 26.7x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
HEICO (HEI)
Market Cap: $32.02 billion
Founded in 1957, HEICO (NYSE: HEI) manufactures and services aerospace and electronic components for commercial aviation, defense, space, and other industries.
Why Will HEI Outperform?
- Market share has increased this cycle as its 19.5% annual revenue growth over the last two years was exceptional
- Earnings per share grew by 28.6% annually over the last two years, massively outpacing its peers
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
At $267.08 per share, HEICO trades at 45.4x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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