3 Industrials Stocks Walking a Fine Line
Whether you see them or not, industrials businesses play a crucial part in our daily activities. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the industry has underperformed the market over the past six months as its 2% return lagged the S&P 500 by 14.3 percentage points.
A cautious approach is imperative when dabbling in these companies as the losers can be left for dead when the cycle naturally turns and the winners consolidate. On that note, here are three industrials stocks we’re passing on.
Saia (SAIA)
Market Cap: $9.16 billion
Pivoting its business model after realizing there was more success in delivering produce than selling it, Saia (NASDAQ:SAIA) is a provider of freight transportation solutions.
Why Are We Wary of SAIA?
- Weak tons shipped over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Saia is trading at $344.46 per share, or 25.9x forward P/E. Read our free research report to see why you should think twice about including SAIA in your portfolio.
Onterris (ONT)
Market Cap: $447 million
Founded to protect a tree-lined two-lane road, Onterris (NYSE:ONT) provides air quality monitoring, environmental laboratory testing, compliance, and environmental consulting services.
Why Does ONT Worry Us?
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- Poor expense management has led to operating margin losses
- Negative returns on capital show that some of its growth strategies have backfired
At $12.72 per share, Onterris trades at 9.3x forward P/E. Dive into our free research report to see why there are better opportunities than ONT.
Werner (WERN)
Market Cap: $2.06 billion
Conducting business in over a 100 countries, Werner (NASDAQ:WERN) offers full-truckload, less-than-truckload, and intermodal delivery services.
Why Are We Out on WERN?
- Muted 1.3% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 39.2% annually
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Werner’s stock price of $34.31 implies a valuation ratio of 19.8x forward P/E. If you’re considering WERN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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