Whether you see them or not, industrials businesses play a crucial part in our daily activities. But their prominence also brings high exposure to the ups and downs of economic cycles. Luckily, the tide is turning in their favor as the industry’s 21.6% return over the past six months has topped the S&P 500 by 8.3 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. Keeping that in mind, here is one industrials stock poised to generate sustainable market-beating returns and two that may face trouble.
Two Industrials Stocks to Sell:
Janus (JBI)
Market Cap: $656 million
Standing out with its digital keyless entry into self-storage room technology, Janus (NYSE: JBI) is a provider of easily accessible self-storage solutions.
Why Do We Think Twice About JBI?
- Annual sales declines of 8.4% for the past two years show its products and services struggled to connect with the market during this cycle
- Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
- Waning returns on capital imply its previous profit engines are losing steam
At $4.81 per share, Janus trades at 6.4x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why JBI doesn’t pass our bar.
Atmus Filtration Technologies (ATMU)
Market Cap: $4.22 billion
Spun out of Cummins in 2023 after 65 years as part of the engine maker, Atmus Filtration Technologies (NYSE: ATMU) manufactures filters for trucks, construction equipment, and agriculture machinery to reduce emissions and protect engines.
Why Does ATMU Give Us Pause?
- Muted 5.6% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- High input costs result in an inferior gross margin of 26.3% that must be offset through higher volumes
Atmus Filtration Technologies’s stock price of $51.64 implies a valuation ratio of 2.2x forward price-to-sales. If you’re considering ATMU for your portfolio, see our FREE research report to learn more.
One Industrials Stock to Watch:
Leidos (LDOS)
Market Cap: $15.56 billion
Formed through the split of IT services company SAIC, Leidos (NYSE: LDOS) offers technology and engineering solutions such as military training systems for the defense, civil, and health markets.
Why Are We Positive On LDOS?
- Backlog has averaged 17.6% growth over the past two years, showing it has a pipeline of unfulfilled orders that will support revenue in the future
- Share buybacks catapulted its annual earnings per share growth to 22.4%, which outperformed its revenue gains over the last two years
- Free cash flow margin increased by 5.1 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Leidos is trading at $123.57 per share, or 10.1x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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