Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 7.5% gain over the past six months, beating the S&P 500 by 2.1 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. On that note, here is one industrials stock poised to generate sustainable market-beating returns and two that may face trouble.

Two Industrials Stocks to Sell:

Teledyne (TDY)

Market Cap: $25.41 billion

Playing a role in mapping the ocean floor as we know it today, Teledyne (NYSE: TDY) offers digital imaging and instrumentation products for various industries.

Why Are We Wary of TDY?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Free cash flow margin shrank by 2.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Low returns on capital reflect management’s struggle to allocate funds effectively

Teledyne’s stock price of $541.92 implies a valuation ratio of 24x forward P/E. Read our free research report to see why you should think twice about including TDY in your portfolio.

Hillenbrand (HI)

Market Cap: $1.80 billion

Hillenbrand, Inc. (NYSE: HI) is an industrial company that designs, manufactures, and sells highly engineered processing equipment and solutions for various industries.

Why Should You Dump HI?

1. Muted 3.5% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
2. 18.9 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Eroding returns on capital suggest its historical profit centers are aging

Hillenbrand is trading at $25.58 per share, or 10.7x forward P/E. Check out our free in-depth research report to learn more about why HI doesn’t pass our bar.

One Industrials Stock to Watch:

RBC Bearings (RBC)

Market Cap: $12.63 billion

With a Guinness World Record for engineering the largest spherical plain bearing, RBC Bearings (NYSE: RBC) is a manufacturer of bearings and related components for the aerospace & defense, industrial, and transportation industries.

Why Should RBC Be on Your Watchlist?

1. Annual revenue growth of 18.9% over the past five years was outstanding, reflecting market share gains this cycle
2. Demand for the next 12 months is expected to accelerate above its two-year trend as Wall Street forecasts robust revenue growth of 14.7%
3. Highly efficient business model is illustrated by its impressive 20.2% operating margin, and its rise over the last five years was fueled by some leverage on its fixed costs

At $401.92 per share, RBC Bearings trades at 33.9x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

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