Whether you see them or not, industrials businesses play a crucial part in our daily activities. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the market seems convinced that demand will slow. Due to this bearish outlook, the industry has tumbled by 9.8% over the past six months. This drawdown is a far cry from the S&P 500’s 8.1% ascent.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. With that said, here is one industrials stock poised to generate sustainable market-beating returns and two we’re passing on.
Two industrials stocks to sell:
A. O. Smith (AOS)
Market Cap: $8.11 billion
Credited with the invention of the glass-lined water heater, A.O. Smith (NYSE: AOS) manufactures water heating and treatment products for various industries.
Why Does AOS Fall Short?
- Sales tumbled by 1.6% annually over the last two years, showing market trends are working against it during this cycle
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $59.19 per share, A. O. Smith trades at 15.5x forward P/E. Dive into our free research report to see why there are better opportunities than AOS.
ESAB (ESAB)
Market Cap: $4.13 billion
Having played a significant role in the construction of the iconic Sydney Opera House, ESAB (NYSE: ESAB) manufactures and sells welding and cutting equipment for numerous industries.
Why Do We Think Twice About ESAB?
- 4.2% annual revenue growth over the last two years was slower than its industrials peers
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Diminishing returns on capital suggest its earlier profit pools are drying up
ESAB is trading at $66.39 per share, or 11.2x forward P/E. Read our free research report to see why you should think twice about including ESAB in your portfolio.
One industrials stock to buy:
GE Aerospace (GE)
Market Cap: $305.7 billion
One of the original 12 companies on the Dow Jones Industrial Average, General Electric (NYSE: GE) is a multinational conglomerate providing technologies for various sectors including aviation, power, renewable energy, and healthcare.
Why Is GE a Top Pick?
- Market share has increased this cycle as its 20.9% annual revenue growth over the last two years was exceptional
- Share repurchases over the last two years enabled its annual earnings per share growth of 35.4% to outpace its revenue gains
- GE is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its improved cash conversion implies it’s becoming a less capital-intensive business
GE Aerospace’s stock price of $295.55 implies a valuation ratio of 33.7x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks we like even more
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.
