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, the tide is turning in their favor as the industry’s 16.5% return over the past six months has topped the S&P 500 by 2.4 percentage points.
Regardless of these results, investors should tread carefully. The diversity of companies in this space means that not all are created equal or well-positioned for the inescapable downturn. Taking that into account, here are two industrials stocks boasting durable advantages and one that may face trouble.
One Industrials Stock to Sell:
Kimball Electronics (KE)
Market Cap: $718.2 million
Founded in 1961, Kimball Electronics (NYSE: KE) is a global contract manufacturer specializing in electronics and manufacturing solutions for automotive, medical, and industrial markets.
Why Should You Dump KE?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 10.8% annually over the last two years
- Earnings per share have contracted by 2.4% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Low free cash flow margin of -0.1% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $29.52 per share, Kimball Electronics trades at 23.2x forward P/E. Dive into our free research report to see why there are better opportunities than KE.
Two Industrials Stocks to Watch:
CACI (CACI)
Market Cap: $13.15 billion
Founded to commercialize SIMSCRIPT, CACI International (NYSE: CACI) offers defense, intelligence, and IT solutions to support national security and government transformation efforts.
Why Do We Like CACI?
- Sales pipeline is in good shape as its backlog averaged 11.3% growth over the past two years
- Financial risk is minimized through its long-term operating margin of 8.6%
- Share repurchases over the last two years enabled its annual earnings per share growth of 20.6% to outpace its revenue gains
CACI’s stock price of $596.00 implies a valuation ratio of 21.2x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
Verra Mobility (VRRM)
Market Cap: $3.41 billion
Aiming to wrap technology and data around a historically manual and paper-based industry, Verra Mobility (NYSE: VRRM) is a leading provider of smart mobility technology to address tolls and violations, title and registration services, as well as safety and traffic enforcement.
Why Are We Fans of VRRM?
- Annual revenue growth of 18.4% over the last five years was superb and indicates its market share increased during this cycle
- Offerings are difficult to replicate at scale and result in a best-in-class gross margin of 61.8%
- Earnings growth has trumped its peers over the last five years as its EPS has compounded at 20.4% annually
Verra Mobility is trading at $21.40 per share, or 16.1x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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