Whether you see them or not, industrials businesses play a crucial part in our daily activities. 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 17.5% for the sector - higher than the S&P 500’s 7.1% return.
Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. On that note, here are three industrials stocks we’re swiping left on.
Keysight (KEYS)
Market Cap: $61.79 billion
Spun off from Hewlett-Packard in 2014, Keysight (NYSE: KEYS) offers electronic measurement products for use in various sectors.
Why Does KEYS Worry Us?
- Sales trends were unexciting over the last two years as its 3.1% annual growth was below the typical industrials company
- Earnings per share have dipped by 2.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Eroding returns on capital suggest its historical profit centers are aging
Keysight’s stock price of $358.50 implies a valuation ratio of 38.7x forward P/E. If you’re considering KEYS for your portfolio, see our FREE research report to learn more.
Knight-Swift Transportation (KNX)
Market Cap: $10.41 billion
Covering 1.6 billion loaded miles in 2023 alone, Knight-Swift Transportation (NYSE: KNX) offers less-than-truckload and full truckload delivery services.
Why Do We Steer Clear of KNX?
- Muted 1.1% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Earnings per share fell by 19.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $64.25 per share, Knight-Swift Transportation trades at 28x forward P/E. Check out our free in-depth research report to learn more about why KNX doesn’t pass our bar.
NVR (NVR)
Market Cap: $16.13 billion
Known for its unique land acquisition strategy, NVR (NYSE: NVR) is a respected homebuilder and mortgage company in the United States.
Why Do We Think NVR Will Underperform?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Earnings per share fell by 7.5% annually over the last two years while its revenue was flat, showing each sale was less profitable
- Eroding returns on capital suggest its historical profit centers are aging
NVR is trading at $6,028 per share, or 15.9x forward P/E. If you’re considering NVR for your portfolio, see our FREE research report to learn more.
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