Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Unfortunately, this role also comes with a demand profile tethered to the ebbs and flows of the broader economy, and investors seem to be forecasting a downturn - over the past six months, the industry has pulled back by 13.4%. This performance is a far cry from the S&P 500’s 4.5% ascent.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. With that said, here are two industrials stocks boasting durable advantages and one best left ignored.
One industrials stock to sell:
Martin Marietta Materials (MLM)
Market cap: $37.54 billion
Operating one of North America's largest networks of quarries, including 14 underground mines, Martin Marietta Materials (NYSE: MLM) is a natural resource-based building materials company that supplies aggregates, cement, and other construction materials for infrastructure and building projects.
Why Do We Think Twice About MLM?
- Sales trends were unexciting over the last five years as its 7.2% annual growth was below the typical industrials company
- Earnings per share fell by 2% annually over the last two years while its revenue grew, partly because it diluted shareholders
- 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Martin Marietta Materials’s stock price of $527.66 implies a valuation ratio of 28.8x forward P/E. If you’re considering MLM for your portfolio, see our FREE research report to learn more.
Two industrials stocks to watch:
Caterpillar (CAT)
Market cap: $254.5 billion
With its iconic yellow machinery working on construction sites, Caterpillar (NYSE: CAT) manufactures construction equipment like bulldozers, excavators, and parts and maintenance services.
Why Will CAT Beat the Market?
- Offerings and unique value proposition resonate with customers, as seen in its above-market 9.9% annual sales growth over the last five years
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 20.5% exceeded its revenue gains over the last five years
- Free cash flow margin jumped by 6 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $559.25 per share, Caterpillar trades at 19.7x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Rockwell Automation (ROK)
Market cap: $42.32 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 Should ROK Be on Your Watchlist?
- Superior product capabilities and pricing power lead to a best-in-class gross margin of 46.4%
- Share buybacks catapulted its annual earnings per share growth to 17.5%, which outperformed its revenue gains over the last two years
- Free cash flow margin increased by 10.1 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Rockwell Automation is trading at $383.03 per share, or 29.8x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
High-quality stocks for all market conditions
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