Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Sure, they are at the whim of macroeconomic factors that influence capital spending (like interest rates), but the industry has held its ground over the past six months as its 4.6% return was almost identical to the S&P 500.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. With that said, here are two resilient industrials stocks at the top of our wish list and one best left ignored.
One Industrials Stock to Sell:
Parker-Hannifin (PH)
Market Cap: $93.52 billion
Founded in 1917, Parker Hannifin (NYSE:PH) is a manufacturer of motion and control systems for a wide variety of mobile, industrial and aerospace markets.
Why Does PH Worry Us?
- 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
- Estimated sales growth of 2.2% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin dropped by 2.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Parker-Hannifin’s stock price of $723.95 implies a valuation ratio of 25.7x forward P/E. To fully understand why you should be careful with PH, check out our full research report (it’s free).
Two Industrials Stocks to Watch:
Armstrong World (AWI)
Market Cap: $8.14 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?
- Impressive 11.1% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Excellent operating margin of 24.7% highlights the efficiency of its business model, and it turbocharged its profits by achieving some fixed cost leverage
- Share repurchases over the last two years enabled its annual earnings per share growth of 19.5% to outpace its revenue gains
Armstrong World is trading at $188 per share, or 25.4x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Limbach (LMB)
Market Cap: $1.59 billion
Established in 1901, Limbach (NASDAQ: LMB) provides integrated building systems solutions, including mechanical, electrical, and plumbing services.
Why Is LMB on Our Radar?
- Operating margin improved by 5.3 percentage points over the last five years as it eliminated redundant costs
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 53.3% outpaced its revenue gains
- ROIC punches in at 22.9%, illustrating management’s expertise in identifying profitable investments, and its returns are climbing as it finds even more attractive growth opportunities
At $139.74 per share, Limbach trades at 33.2x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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