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 25.5% gain over the past six months, beating the S&P 500 by 7.8 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. On that note, here is one resilient industrials stock at the top of our wish list and two we’re steering clear of.
Two Industrials Stocks to Sell:
Acuity Brands (AYI)
Market Cap: $10.3 billion
One of the pioneers of smart lights, Acuity (NYSE: AYI) designs and manufactures light fixtures and building management systems used in various industries.
Why Does AYI Fall Short?
- Muted 1.4% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- 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
At $339.40 per share, Acuity Brands trades at 18.2x forward P/E. If you’re considering AYI for your portfolio, see our FREE research report to learn more.
Crane (CR)
Market Cap: $10.73 billion
Based in Connecticut, Crane (NYSE: CR) is a diversified manufacturer of engineered industrial products, including fluid handling, and aerospace technologies.
Why Do We Steer Clear of CR?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 6.1% annually over the last five years
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Issuance of new shares over the last two years caused its earnings per share to fall by 6.7% annually while its revenue grew
Crane’s stock price of $187 implies a valuation ratio of 31.7x forward P/E. Check out our free in-depth research report to learn more about why CR doesn’t pass our bar.
One Industrials Stock to Watch:
Allison Transmission (ALSN)
Market Cap: $7.57 billion
Helping build race cars at one point, Allison Transmission (NYSE: ALSN) offers transmissions to original equipment manufacturers and fleet operators.
Why Are We Fans of ALSN?
- Offerings are difficult to replicate at scale and lead to a best-in-class gross margin of 47.9%
- Disciplined cost controls and effective management resulted in a strong long-term operating margin of 29.3%, and its profits increased over the last five years as it scaled
- Strong free cash flow margin of 20.2% enables it to reinvest or return capital consistently
Allison Transmission is trading at $90 per share, or 13.2x forward EV-to-EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.
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