Whether you see them or not, industrials businesses play a crucial part in our daily activities. But their prominence also brings high exposure to the ups and downs of economic cycles. Luckily, their overall demand was steady over the past six months as the industry’s 4.5% return has closely followed the S&P 500.
Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. Taking that into account, here is one industrials stock boasting a durable advantage and two best left ignored.
Two Industrials Stocks to Sell:
ESAB (ESAB)
Market Cap: $6.75 billion
Having played a significant role in the construction of the iconic Sydney Opera House, ESAB (NYSE: ESAB) manufactures and sells welding and cutting equipment for numerous industries.
Why Do We Avoid ESAB?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings growth underperformed the sector average over the last four years as its EPS grew by just 3.6% annually
- 4.6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
At $111.13 per share, ESAB trades at 19.2x forward P/E. Read our free research report to see why you should think twice about including ESAB in your portfolio.
Hexcel (HXL)
Market Cap: $4.80 billion
Founded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE: HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.
Why Is HXL Risky?
- Sales tumbled by 1.8% annually over the last five years, showing market trends are working against its favor during this cycle
- Earnings per share have contracted by 5.6% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.2 percentage points
Hexcel is trading at $60.32 per share, or 27.1x forward P/E. Check out our free in-depth research report to learn more about why HXL doesn’t pass our bar.
One Industrials Stock to Watch:
ITT (ITT)
Market Cap: $12.92 billion
Playing a crucial role in the development of the first transatlantic television transmission in 1956, ITT (NYSE: ITT) provides motion and fluid handling equipment for various industries
Why Are We Positive On ITT?
- Disciplined cost controls and effective management resulted in a strong long-term operating margin of 16.4%, and it turbocharged its profits by achieving some fixed cost leverage
- Free cash flow margin jumped by 15.5 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Industry-leading 18.6% return on capital demonstrates management’s skill in finding high-return investments
ITT’s stock price of $165.67 implies a valuation ratio of 24.5x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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