Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the industry has underperformed the market over the past six months as its 6.3% return lagged the S&P 500 by 2.3 percentage points.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. 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:
Albany (AIN)
Market Cap: $2.11 billion
Founded in 1895, Albany (NYSE: AIN) is a global textiles and materials processing company, specializing in machine clothing for paper mills and engineered composite structures for aerospace and other industries.
Why Is AIN Risky?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Free cash flow margin dropped by 5.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Albany is trading at $74.26 per share, or 1.8x trailing 12-month price-to-sales. If you’re considering AIN for your portfolio, see our FREE research report to learn more.
Atmus Filtration Technologies (ATMU)
Market Cap: $4.29 billion
Spun out of Cummins in 2023 after 65 years as part of the engine maker, Atmus Filtration Technologies (NYSE: ATMU) manufactures filters for trucks, construction equipment, and agriculture machinery to reduce emissions and protect engines.
Why Does ATMU Fall Short?
- Sales trends were unexciting over the last two years as its 5.6% annual growth was below the typical industrials company
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 26.3%
- Free cash flow margin was stuck in limbo over the last five years
At $52.60 per share, Atmus Filtration Technologies trades at 17x forward P/E. Read our free research report to see why you should think twice about including ATMU in your portfolio.
One Industrials Stock to Buy:
Quanta (PWR)
Market Cap: $96.51 billion
A construction engineering services company, Quanta (NYSE: PWR) provides infrastructure solutions to a variety of sectors, including energy and communications.
Why Do We Love PWR?
- Sales pipeline is in good shape as its backlog averaged 21.2% growth over the past two years
- Market share will likely rise over the next 12 months as its expected revenue growth of 19.6% is robust
- Earnings per share grew by 26% annually over the last two years, massively outpacing its peers
Quanta’s stock price of $643.08 implies a valuation ratio of 44.3x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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