Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Unfortunately, this role also comes with a demand profile tethered to the ebbs and flows of the broader economy, and investors seem to be forecasting a downturn - over the past six months, the industry has pulled back by 16.2%. This performance was worse than the S&P 500’s 9.3% loss.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Taking that into account, here is one industrials stock poised to generate sustainable market-beating returns and two we’re swiping left on.
Two Industrials Stocks to Sell:
Huntington Ingalls (HII)
Market Cap: $7.85 billion
Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE: HII) develops marine vessels and their mission systems and maintenance services.
Why Should You Dump HII?
- Average backlog growth of 1.6% over the past two years was mediocre and suggests fewer customers signed long-term contracts
- Free cash flow margin shrank by 7.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Waning returns on capital imply its previous profit engines are losing steam
Huntington Ingalls is trading at $200.03 per share, or 13x forward price-to-earnings. Check out our free in-depth research report to learn more about why HII doesn’t pass our bar.
Great Lakes Dredge & Dock (GLDD)
Market Cap: $584.6 million
Founded as Lydon & Drews dredging company, Great Lakes Dredge & Dock (NASDAQ: GLDD) provides dredging services, land reclamation, and coastal protection projects in the United States and internationally.
Why Do We Think GLDD Will Underperform?
- Sales trends were unexciting over the last five years as its 1.4% annual growth was below the typical industrials company
- Free cash flow margin dropped by 11.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Great Lakes Dredge & Dock’s stock price of $8.68 implies a valuation ratio of 10.9x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than GLDD.
One Industrials Stock to Watch:
Enphase (ENPH)
Market Cap: $7.17 billion
The first company to successfully commercialize the solar micro-inverter, Enphase (NASDAQ: ENPH) manufactures software-driven home energy products.
Why Are We Positive On ENPH?
- Projected revenue growth of 15.2% for the next 12 months is above its two-year trend, pointing to accelerating demand
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its growing cash flow gives it even more resources to deploy
- ROIC punches in at 42.7%, illustrating management’s expertise in identifying profitable investments
At $49.92 per share, Enphase trades at 15.2x forward price-to-earnings. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
