Whether you see them or not, industrials businesses play a crucial part in our daily activities. 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’s 18.9% return over the past six months has topped the S&P 500 by 9.7 percentage points.
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. With that said, here is one industrials stock boasting a durable advantage and two we’re passing on.
Two Industrials Stocks to Sell:
AGCO (AGCO)
Market Cap: $8.04 billion
With a history that features both organic growth and acquisitions, AGCO (NYSE: AGCO) designs, manufactures, and sells agricultural machinery and related technology.
Why Do We Think AGCO Will Underperform?
- Sales tumbled by 13.9% annually over the last two years, showing market trends are working against it during this cycle
- Earnings per share have contracted by 16.3% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Eroding returns on capital suggest its historical profit centers are aging
At $112.59 per share, AGCO trades at 17.4x forward P/E. If you’re considering AGCO for your portfolio, see our FREE research report to learn more.
Schneider (SNDR)
Market Cap: $6.67 billion
Employing thousands of drivers across the country to make deliveries, Schneider (NYSE: SNDR) makes full truckload and intermodal deliveries regionally and across borders.
Why Do We Steer Clear of SNDR?
- Annual revenue growth of 2.6% over the last two years was below our standards for the industrials sector
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- Eroding returns on capital suggest its historical profit centers are aging
Schneider is trading at $37.65 per share, or 37.2x forward P/E. To fully understand why you should be careful with SNDR, check out our full research report (it’s free).
One Industrials Stock to Buy:
Mueller Water Products (MWA)
Market Cap: $4.01 billion
As one of the oldest companies in the water infrastructure industry, Mueller (NYSE: MWA) is a provider of water infrastructure products and flow control systems for various sectors.
Why Will MWA Beat the Market?
- Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 32.8% annually, topping its revenue gains
- Free cash flow margin increased by 6.6 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Mueller Water Products’s stock price of $25.80 implies a valuation ratio of 17x 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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