Whether you see them or not, industrials businesses play a crucial part in our daily activities. Their momentum is also rising as lower interest rates have incentivized higher capital spending, and as a result, the industry has posted a six-month gain of 10.2%. This was a good place to be as the S&P 500 was down 1.8%.

Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. Taking that into account, here is one industrials stock boasting a durable advantage and two we’re steering clear of.

Two Industrials Stocks to Sell:

Pangaea (PANL)

Market Cap: $492.5 million

Established in 1996, Pangaea Logistics (NASDAQ: PANL) specializes in global logistics and transportation services, focusing on the shipment of dry bulk cargoes.

Why Are We Hesitant About PANL?

1. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 5 percentage points
2. Earnings per share have dipped by 30.5% annually over the past four years, which is concerning because stock prices follow EPS over the long term
3. Poor free cash flow margin of 1.1% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

Pangaea is trading at $7.48 per share, or 29x forward P/E. To fully understand why you should be careful with PANL, check out our full research report (it’s free).

Astec (ASTE)

Market Cap: $1.35 billion

Inventing the first ever double-barrel hot-mix asphalt plant, Astec (NASDAQ: ASTE) provides machines and equipment for building roads, processing raw materials, and producing concrete.

Why Does ASTE Give Us Pause?

1. Annual revenue growth of 2.7% over the last two years was below our standards for the industrials sector
2. Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 13.1% declines over the past two years
3. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

At $58.93 per share, Astec trades at 14.8x forward P/E. If you’re considering ASTE for your portfolio, see our FREE research report to learn more.

One Industrials Stock to Buy:

GE Aerospace (GE)

Market Cap: $321.9 billion

One of the original 12 companies on the Dow Jones Industrial Average, General Electric (NYSE: GE) is a multinational conglomerate providing technologies for various sectors including aviation, power, renewable energy, and healthcare.

Why Is GE a Good Business?

1. Market share has increased this cycle as its 15.1% annual revenue growth over the last two years was exceptional
2. Share repurchases over the last two years enabled its annual earnings per share growth of 50.9% to outpace its revenue gains
3. Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its rising cash conversion increases its margin of safety

GE Aerospace’s stock price of $307.87 implies a valuation ratio of 38.6x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

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