Whether you see them or not, industrials businesses play a crucial part in our daily activities. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the industry’s six-month return of 2.9% has fallen short of the S&P 500’s 13.5% rise.
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. Keeping that in mind, here are three industrials stocks we’re steering clear of.
L.B. Foster (FSTR)
Market Cap: $399.1 million
Founded with a $2,500 loan, L.B. Foster (NASDAQ: FSTR) is a provider of products and services for the transportation and energy infrastructure sectors, including rail products, construction materials, and coating solutions.
Why Is FSTR Not Exciting?
- New orders were hard to come by as its backlog was flat over the past two years
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 1.2% annually
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $37.13 per share, L.B. Foster trades at 21.9x forward P/E. If you’re considering FSTR for your portfolio, see our FREE research report to learn more.
General Dynamics (GD)
Market Cap: $105.9 billion
Creator of the famous M1 Abrahms tank, General Dynamics (NYSE: GD) develops aerospace, marine systems, combat systems, and information technology products.
Why Are We Hesitant About GD?
- The company has faced growth challenges as its 7.3% annual revenue increases over the last five years fell short of other industrials companies
- Estimated sales growth of 4% for the next 12 months implies demand will slow from its two-year trend
- Earnings per share lagged its peers over the last five years as they only grew by 7.4% annually
General Dynamics’s stock price of $393.81 implies a valuation ratio of 22.6x forward P/E. Dive into our free research report to see why there are better opportunities than GD.
Hub Group (HUBG)
Market Cap: $2.32 billion
Started with $10,000, Hub Group (NASDAQ: HUBG) is a provider of intermodal, truck brokerage, and logistics services, facilitating transportation solutions for businesses worldwide.
Why Is HUBG Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 9% annually over the last two years
- Sales were less profitable over the last two years as its earnings per share fell by 28% annually, worse than its revenue declines
- Diminishing returns on capital suggest its earlier profit pools are drying up
Hub Group is trading at $38 per share, or 24.7x forward P/E. Check out our free in-depth research report to learn more about why HUBG doesn’t pass our bar.
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