Even if they go mostly unnoticed, industrial businesses are the backbone of our country. But their prominence also brings high exposure to the ups and downs of economic cycles. Luckily, the tide is turning in their favor as the industry has returned 7.4% over the past six months while the S&P 500 fell by 1.3%.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. With that said, here are two industrials stocks we think can generate sustainable market-beating returns and one we’re swiping left on.
One Industrials Stock to Sell:
Autoliv (ALV)
Market Cap: $7.87 billion
With products estimated to save over 30,000 lives annually in traffic accidents worldwide, Autoliv (NYSE: ALV) develops and manufactures passive safety systems for vehicles, including airbags, seatbelts, and steering wheels that protect occupants during crashes.
Why Does ALV Fall Short?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 1.6% over the last two years was below our standards for the industrials sector
- Projected sales growth of 2.1% for the next 12 months suggests sluggish demand
- High input costs result in an inferior gross margin of 17.9% that must be offset through higher volumes
Autoliv is trading at $105.13 per share, or 10x forward P/E. If you’re considering ALV for your portfolio, see our FREE research report to learn more.
Two Industrials Stocks to Buy:
Construction Partners (ROAD)
Market Cap: $6.33 billion
Founded in 2001, Construction Partners (NASDAQ: ROAD) is a civil infrastructure company that builds and maintains roads, highways, and other infrastructure projects.
Why Are We Bullish on ROAD?
- Impressive 37.5% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 49.6% annually, topping its revenue gains
- Free cash flow margin increased by 7.8 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Construction Partners’s stock price of $109.93 implies a valuation ratio of 36.7x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Bloom Energy (BE)
Market Cap: $42.14 billion
Working in stealth mode for eight years, Bloom Energy (NYSE: BE) designs, manufactures, and markets solid oxide fuel cell systems for on-site power generation.
Why Will BE Outperform?
- Impressive 23.2% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Free cash flow flipped to positive over the last five years, indicating the company has achieved financial self-sustainability
- Improving returns on capital suggest its past investments are beginning to deliver value
At $149.13 per share, Bloom Energy trades at 105.1x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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