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 3.7% for the sector. Investing here would have been wise - at the same time, the S&P 500 fell by 5.5%.
Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. Taking that into account, here is one resilient industrials stock at the top of our wish list and two that may face trouble.
Two Industrials Stocks to Sell:
FedEx (FDX)
Market Cap: $84.99 billion
Sporting one of the largest air cargo fleets in the world, FedEx (NYSE: FDX) is a global provider of parcel and cargo delivery services.
Why Do We Pass on FDX?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.5% over the last two years was below our standards for the industrials sector
- Low free cash flow margin of 2.4% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
FedEx’s stock price of $355.66 implies a valuation ratio of 16.2x forward P/E. Dive into our free research report to see why there are better opportunities than FDX.
XPO (XPO)
Market Cap: $22.79 billion
Owning a mobile game simulating freight operations for the Tour de France, XPO (NYSE: XPO) is a transportation company specializing in expedited shipping services.
Why Does XPO Fall Short?
- Muted 2.6% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Gross margin of 17.3% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Poor free cash flow margin of 1.8% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
At $193.59 per share, XPO trades at 41.8x forward P/E. If you’re considering XPO for your portfolio, see our FREE research report to learn more.
One Industrials Stock to Buy:
Fluence Energy (FLNC)
Market Cap: $1.82 billion
Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ: FLNC) helps store renewable energy sources with battery systems.
Why Will FLNC Beat the Market?
- Annual revenue growth of 33.8% over the last five years was superb and indicates its market share increased during this cycle
- Earnings per share have massively outperformed its peers over the last four years, increasing by 36.4% annually
- Cash burn has become less severe over the last five years, showing the company is making some progress toward financial sustainability
Fluence Energy is trading at $13.95 per share, or 227.9x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
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