Even if they go mostly unnoticed, industrial businesses are the backbone of our country. 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 34.5% return over the past six months has topped the S&P 500 by 11.9 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. With that said, here are three industrials stocks we’re swiping left on.
AMETEK (AME)
Market Cap: $45.8 billion
Started from its humble beginnings in motor repair, AMETEK (NYSE: AME) manufactures electronic devices used in industries like aerospace, power, and healthcare.
Why Is AME Not Exciting?
- 5.1% annual revenue growth over the last two years was slower than its industrials peers
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
AMETEK is trading at $198.20 per share, or 26.1x forward P/E. Dive into our free research report to see why there are better opportunities than AME.
GATX (GATX)
Market Cap: $5.64 billion
Originally founded to ship beer, GATX (NYSE: GATX) provides leasing and management services for railcars and other transportation assets globally.
Why Does GATX Give Us Pause?
- Demand for its offerings was relatively low as its number of active railcars has underwhelmed
- Cash burn makes us question whether it can achieve sustainable long-term growth
- High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens
GATX’s stock price of $158.38 implies a valuation ratio of 16.6x forward P/E. To fully understand why you should be careful with GATX, check out our full research report (it’s free for active Edge members).
Universal Logistics (ULH)
Market Cap: $431.5 million
Founded in 1932, Universal Logistics (NASDAQ: ULH) is a provider of customized transportation and logistics solutions operating throughout the United States and in Mexico, Canada, and Colombia.
Why Are We Out on ULH?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.1% annually over the last two years
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 28% annually, worse than its revenue
- Cash-burning history makes us doubt the long-term viability of its business model
At $16.39 per share, Universal Logistics trades at 13.1x forward P/E. If you’re considering ULH for your portfolio, see our FREE research report to learn more.
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