Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 20.3% gain over the past six months, beating the S&P 500 by 10.5 percentage points.
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. On that note, here is one industrials stock boasting a durable advantage and two we’re steering clear of.
Two Industrials Stocks to Sell:
Masco (MAS)
Market Cap: $13.39 billion
Headquartered just outside of Detroit, MI, Masco (NYSE: MAS) designs and manufactures home-building products such as glass shower doors, decorative lighting, bathtubs, and faucets.
Why Should You Sell MAS?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Anticipated sales growth of 1.7% for the next year implies demand will be shaky
- Diminishing returns on capital suggest its earlier profit pools are drying up
Masco’s stock price of $67.90 implies a valuation ratio of 16.1x forward P/E. Read our free research report to see why you should think twice about including MAS in your portfolio.
Redwire (RDW)
Market Cap: $2.27 billion
Based in Jacksonville, Florida, Redwire (NYSE: RDW) is a provider of systems and components used in space infrastructure.
Why Do We Avoid RDW?
- Historically negative EPS casts doubt for cautious investors and clouds its long-term earnings prospects
- Free cash flow margin dropped by 14 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $11.56 per share, Redwire trades at 4.5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than RDW.
One Industrials Stock to Buy:
Armstrong World (AWI)
Market Cap: $6.74 billion
Started as a two-man shop dating back to the 1860s, Armstrong (NYSE: AWI) provides ceiling and wall products to commercial and residential spaces.
Why Will AWI Beat the Market?
- Annual revenue growth of 12.1% over the past two years was outstanding, reflecting market share gains this cycle
- Highly efficient business model is illustrated by its impressive 24.9% operating margin, and its operating leverage amplified its profits over the last five years
- Free cash flow margin expanded by 5.2 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
Armstrong World is trading at $158.00 per share, or 18.4x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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