Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the market seems confused about where we could go next. This uncertainty has led to a flat return for the industry over the past six months while the S&P 500 was up 4.1%.
Investors should tread carefully as timing cyclical companies is a challenging task, and any misstep can have you catching a falling knife. Keeping that in mind, here are three industrials stocks best left ignored.
Rockwell Automation (ROK)
Market Cap: $40.13 billion
One of the first companies to address industrial automation, Rockwell Automation (NYSE: ROK) sells products that help customers extract more efficiency from their machinery.
Why Is ROK Risky?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Eroding returns on capital suggest its historical profit centers are aging
Rockwell Automation’s stock price of $355.02 implies a valuation ratio of 35.6x forward P/E. To fully understand why you should be careful with ROK, check out our full research report (it’s free).
ArcBest (ARCB)
Market Cap: $1.80 billion
Historically owning furniture, banking, and other subsidiaries, ArcBest (NASDAQ: ARCB) offers full-truckload, less-than-truckload, and intermodal deliveries of freight.
Why Should You Sell ARCB?
- Declining unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Earnings per share have dipped by 32.9% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
ArcBest is trading at $78.54 per share, or 12.3x forward P/E. Check out our free in-depth research report to learn more about why ARCB doesn’t pass our bar.
Universal Logistics (ULH)
Market Cap: $662.3 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 Do We Pass on ULH?
- Sales tumbled by 5.1% annually over the last two years, showing market trends are working against its favor during this cycle
- Earnings per share have contracted by 22.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Free cash flow margin shrank by 9.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $25.15 per share, Universal Logistics trades at 8x forward P/E. If you’re considering ULH for your portfolio, see our FREE research report to learn more.
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