Even if they go mostly unnoticed, industrial businesses are the backbone of our country. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the market seems convinced that demand will slow. Due to this bearish outlook, the industry has tumbled by 2.5% over the past six months. This performance is a far cry from the S&P 500’s 10.8% ascent.
Some companies can grow regardless of the economic backdrop, but the odds aren’t great for the ones we’re analyzing today. Keeping that in mind, here are three industrials stocks we’re steering clear of.
Veralto (VLTO)
Market Cap: $24.08 billion
Spun off from Danaher in 2023, Veralto (NYSE: VLTO) provides water analytics and treatment solutions.
Why Does VLTO Give Us Pause?
- 4.6% annual revenue growth over the last five years was slower than its industrials peers
- Projected sales growth of 6.5% for the next 12 months suggests sluggish demand
Veralto’s stock price of $98.78 implies a valuation ratio of 22x forward P/E. To fully understand why you should be careful with VLTO, check out our full research report (it’s free).
Rockwell Automation (ROK)
Market Cap: $47.68 billion
One of the first companies to address industrial automation, Rockwell Automation (NYSE: ROK) sells products that help customers extract more efficiency from their machinery.
Why Does ROK Worry Us?
- 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
- Estimated sales growth of 4.8% for the next 12 months is soft and implies weaker demand
- Waning returns on capital imply its previous profit engines are losing steam
Rockwell Automation is trading at $428.90 per share, or 29.7x forward P/E. Dive into our free research report to see why there are better opportunities than ROK.
UFP Industries (UFPI)
Market Cap: $4.88 billion
Beginning as a lumber supplier in the 1950s, UFP Industries (NASDAQ: UFPI) is a holding company making building materials for the construction, retail, and industrial sectors.
Why Are We Bearish on UFPI?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 3.4% annually over the last five years
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Waning returns on capital imply its previous profit engines are losing steam
At $88.69 per share, UFP Industries trades at 17.3x forward P/E. Read our free research report to see why you should think twice about including UFPI in your portfolio.
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