Whether you see them or not, industrials businesses play a crucial part in our daily activities. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 27% for the sector - higher than the S&P 500’s 9.1% return.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. On that note, here are two industrials stocks boasting durable advantages and one that may face trouble.
One Industrials Stock to Sell:
Great Lakes Dredge & Dock (GLDD)
Market Cap: $1.08 billion
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 Are We Cautious About GLDD?
- Average backlog growth of 4.2% over the past two years was mediocre and suggests fewer customers signed long-term contracts
- Gross margin of 16.9% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Negative free cash flow raises questions about the return timeline for its investments
At $16.14 per share, Great Lakes Dredge & Dock trades at 16.6x forward P/E. Check out our free in-depth research report to learn more about why GLDD doesn’t pass our bar.
Two Industrials Stocks to Watch:
Teledyne (TDY)
Market Cap: $30.98 billion
Playing a role in mapping the ocean floor as we know it today, Teledyne (NYSE:TDY) offers digital imaging and instrumentation products for various industries.
Why Do We Like TDY?
- Annual revenue growth of 14.7% over the last five years was superb and indicates its market share increased during this cycle
- Operating margin improvement of 5.3 percentage points over the last five years demonstrates its ability to scale efficiently
- TDY is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its improved cash conversion implies it’s becoming a less capital-intensive business
Teledyne is trading at $661.28 per share, or 27.6x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Trane Technologies (TT)
Market Cap: $102.1 billion
With low-pressure heating systems as its first product, Trane (NYSE:TT) designs, manufactures, and sells HVAC and refrigeration systems, the former to commercial and residential building customers and the latter to commercial truck manufacturers.
Why Are We Bullish on TT?
- Impressive 11.4% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures, and its returns are growing as it capitalizes on even better market opportunities
Trane Technologies’s stock price of $460.96 implies a valuation ratio of 31.1x 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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