Even if they go mostly unnoticed, industrial businesses are the backbone of our country. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 22.1% for the sector - higher than the S&P 500’s 15.5% return.
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 are three industrials stocks we’re passing on.
Masco (MAS)
Market Cap: $14.99 billion
Headquartered just outside of Detroit, MI, Masco (NYSE: MAS) designs and manufactures home-building products such as glass shower doors, decorative lighting, bathtubs, and faucets.
Why Do We Steer Clear of MAS?
- 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
- Estimated sales growth of 1.3% for the next 12 months is soft and implies weaker demand
- Eroding returns on capital suggest its historical profit centers are aging
Masco’s stock price of $72.28 implies a valuation ratio of 19.4x forward P/E. If you’re considering MAS for your portfolio, see our FREE research report to learn more.
Stratasys (SSYS)
Market Cap: $994.7 million
Born from the Founder’s idea of making a toy frog with a glue gun, Stratasys (NASDAQ: SSYS) offers 3D printers and related materials, software, and services to many industries.
Why Do We Think SSYS Will Underperform?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Free cash flow margin shrank by 6.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Stratasys is trading at $11.70 per share, or 31.5x forward P/E. To fully understand why you should be careful with SSYS, check out our full research report (it’s free).
Sealed Air (SEE)
Market Cap: $4.93 billion
Founded in 1960, Sealed Air Corporation (NYSE: SEE) specializes in the development and production of protective and food packaging solutions, serving a variety of industries.
Why Are We Out on SEE?
- Declining unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 3.9% annually, worse than its revenue
- Waning returns on capital imply its previous profit engines are losing steam
At $33.51 per share, Sealed Air trades at 10.9x forward P/E. Check out our free in-depth research report to learn more about why SEE doesn’t pass our bar.
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