Whether you see them or not, industrials businesses play a crucial part in our daily activities. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 18.1% gain over the past six months, beating the S&P 500 by 8.9 percentage points.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. Keeping that in mind, here is one resilient industrials stock at the top of our wish list and two that may face trouble.
Two Industrials Stocks to Sell:
FARO (FARO)
Market Cap: $849.7 million
Launched by two PhD students in a garage, FARO (NASDAQ: FARO) provides 3D measurement and imaging systems for the manufacturing, construction, engineering, and public safety industries.
Why Are We Cautious About FARO?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.5% annually over the last five years
- Poor expense management has led to operating margin losses
- Cash-burning history makes us doubt the long-term viability of its business model
FARO’s stock price of $44 implies a valuation ratio of 39.6x forward P/E. Read our free research report to see why you should think twice about including FARO in your portfolio.
BrightView (BV)
Market Cap: $1.38 billion
An official field consultant for Major League Baseball, BrightView (NYSE: BV) offers landscaping design, development, and maintenance.
Why Do We Steer Clear of BV?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.7% annually over the last two years
- Earnings per share have contracted by 2.5% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Free cash flow margin shrank by 5.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $14.55 per share, BrightView trades at 16.1x forward P/E. Dive into our free research report to see why there are better opportunities than BV.
One Industrials Stock to Buy:
American Superconductor (AMSC)
Market Cap: $2.43 billion
Founded in 1987, American Superconductor (NASDAQ: AMSC) has shifted from superconductor research to developing power systems, adapting to changing energy grid needs and naval technology requirements.
Why Is AMSC a Top Pick?
- Impressive 49.8% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Free cash flow profile has moved into positive territory over the last five years, indicating the company has passed a significant test
- Historical investments are beginning to pay off as its returns on capital are growing
American Superconductor is trading at $53.80 per share, or 94.5x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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