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1 Industrials Stock to Research Further and 2 We Find Risky
Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the market seems to be baking in a prolonged downturn as the industry has shed 3% over the past six months. This drawdown is a stark contrast from the S&P 500’s 12.3% gain.
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 is one industrials stock boasting a durable advantage and two best left ignored.
Two Industrials Stocks to Sell:
Owens Corning (OC)
Market Cap: $11.31 billion
Credited with the discovery of fiberglass, Owens Corning (NYSE:OC) supplies building and construction materials to the United States and international markets.
Why Are We Out on OC?
- Muted 2.9% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 20.2% annually
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Owens Corning’s stock price of $143.14 implies a valuation ratio of 12.9x forward P/E. To fully understand why you should be careful with OC, check out our full research report (it’s free).
Proto Labs (PRLB)
Market Cap: $1.91 billion
Pioneering the concept of online quoting and manufacturing for custom prototypes and low-volume production parts, Proto Labs (NYSE:PRLB) offers injection molding, 3D printing, and sheet metal fabrication for manufacturers in various industries.
Why Is PRLB Not Exciting?
- Muted 4.4% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Operating margin of 0.6% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Negative returns on capital show that some of its growth strategies have backfired
Proto Labs is trading at $79.74 per share, or 35x forward P/E. Check out our free in-depth research report to learn more about why PRLB doesn’t pass our bar.
One Industrials Stock to Watch:
Mueller Water Products (MWA)
Market Cap: $3.81 billion
As one of the oldest companies in the water infrastructure industry, Mueller (NYSE:MWA) is a provider of water infrastructure products and flow control systems for various sectors.
Why Does MWA Stand Out?
- Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 29.2% annually, topping its revenue gains
- Free cash flow margin expanded by 12.1 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
At $24.38 per share, Mueller Water Products trades at 15.9x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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