Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Unfortunately, this role also comes with a demand profile tethered to the ebbs and flows of the broader economy, and investors seem to be forecasting a downturn - over the past six months, the industry has pulled back by 8.9%. This drop is a noticeable divergence from the S&P 500’s 7.5% return.
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 are two industrials stocks boasting durable advantages and one that may face trouble.
One industrials stock to sell:
C.H. Robinson Worldwide (CHRW)
Market cap: $14.71 billion
Engaging in contracts with tens of thousands of transportation companies, C.H. Robinson (NASDAQ: CHRW) offers freight transportation and logistics services.
Why Do We Think Twice About CHRW?
- Sales tumbled by 2.9% annually over the last five years, showing market trends are working against it during this cycle
- High input costs result in an inferior gross margin of 7.6% that must be offset through higher volumes
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $126.80 per share, C.H. Robinson Worldwide trades at 17.4x forward P/E. Read our free research report to see why you should think twice about including CHRW in your portfolio.
Two industrials stocks to buy:
Nextpower (NXT)
Market cap: $12.11 billion
With its technology playing a key role in the massive 1.2 gigawatt Noor Abu Dhabi solar farm project, Nextpower (NASDAQ: NXT) is a provider of solar tracker systems that help solar panels follow the sun.
Why Will NXT Outperform?
- Annual revenue growth of 17% over the last two years was superb and indicates its market share increased during this cycle
- Free cash flow margin expanded by 17.8 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Returns on capital are growing as management capitalizes on its market opportunities
Nextpower is trading at $78.94 per share, or 16.1x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
DXP (DXPE)
Market cap: $2.74 billion
Founded during the emergence of Big Oil in Texas, DXP (NASDAQ: DXPE) provides pumps, valves, and other industrial components.
What Makes DXPE Stand Out?
- Annual revenue growth of 16.8% over the past five years was outstanding, reflecting market share gains this cycle
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Free cash flow margin jumped by 4 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
DXP’s stock price of $176.02 implies a valuation ratio of 23.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks we like even more
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