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 3.7 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 industrials stock poised to generate sustainable market-beating returns and two best left ignored.
Two Industrials Stocks to Sell:
ESAB (ESAB)
Market Cap: $7.05 billion
Having played a significant role in the construction of the iconic Sydney Opera House, ESAB (NYSE: ESAB) manufactures and sells welding and cutting equipment for numerous industries.
Why Are We Cautious About ESAB?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Free cash flow margin shrank by 3.2 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
ESAB is trading at $116.14 per share, or 19.9x forward P/E. Read our free research report to see why you should think twice about including ESAB in your portfolio.
Allison Transmission (ALSN)
Market Cap: $8.31 billion
Helping build race cars at one point, Allison Transmission (NYSE: ALSN) offers transmissions to original equipment manufacturers and fleet operators.
Why Do We Think Twice About ALSN?
- 1.5% annual revenue growth over the last two years was slower than its industrials peers
- Forecasted revenue decline of 4.8% for the upcoming 12 months implies demand will fall off a cliff
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 6.3% annually
At $99.87 per share, Allison Transmission trades at 13.8x forward P/E. Dive into our free research report to see why there are better opportunities than ALSN.
One Industrials Stock to Watch:
Energy Recovery (ERII)
Market Cap: $766.5 million
Having saved far more than a trillion gallons of water, Energy Recovery (NASDAQ: ERII) provides energy recovery devices to the water treatment, oil and gas, and chemical processing sectors.
Why Are We Fans of ERII?
- Offerings are difficult to replicate at scale and result in a best-in-class gross margin of 67.6%
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 42.6% exceeded its revenue gains over the last two years
- Free cash flow margin jumped by 6.3 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Energy Recovery’s stock price of $14.47 implies a valuation ratio of 17.2x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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