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 12.4% for the sector - higher than the S&P 500’s 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 steering clear of.
Snap-on (SNA)
Market Cap: $20.34 billion
Founded in 1920, Snap-on (NYSE: SNA) is a global provider of tools, equipment, and diagnostics for various industries such as vehicle repair, aerospace, and the military.
Why Does SNA Give Us Pause?
- 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
- Earnings per share were flat over the last two years and fell short of the peer group average
- Eroding returns on capital suggest its historical profit centers are aging
Snap-on’s stock price of $391.50 implies a valuation ratio of 3.8x forward price-to-sales. Read our free research report to see why you should think twice about including SNA in your portfolio.
L.B. Foster (FSTR)
Market Cap: $313.7 million
Founded with a $2,500 loan, L.B. Foster (NASDAQ: FSTR) is a provider of products and services for the transportation and energy infrastructure sectors, including rail products, construction materials, and coating solutions.
Why Are We Hesitant About FSTR?
- Backlog growth averaged a weak 4.4% over the past two years, suggesting it may need to tweak its product roadmap or go-to-market strategy
- Flat earnings per share over the last five years underperformed the sector average
- Low returns on capital reflect management’s struggle to allocate funds effectively
L.B. Foster is trading at $30 per share, or 19.9x forward P/E. Dive into our free research report to see why there are better opportunities than FSTR.
Hayward (HAYW)
Market Cap: $3.34 billion
Credited with introducing the first variable-speed pool pump, Hayward (NYSE: HAYW) makes residential and commercial pool equipment and accessories.
Why Does HAYW Fall Short?
- 5.1% annual revenue growth over the last five years was slower than its industrials peers
- Estimated sales growth of 4.1% for the next 12 months implies demand will slow from its two-year trend
- Earnings per share have contracted by 20.8% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
At $15.34 per share, Hayward trades at 18x forward P/E. Read our free research report to see why you should think twice about including HAYW in your portfolio.
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