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 8.3% return was almost identical to the S&P 500.
Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. Taking that into account, here are three industrials stocks that may face trouble.
Snap-on (SNA)
Market Cap: $19.93 billion
Founded in 1920, Snap-on (NYSE: SNA) is a global provider of tools, equipment, and diagnostics for various industries such as vehicle repair, aerospace, and the military.
Why Do We Think Twice About SNA?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Flat earnings per share over the last two years lagged its peers
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $399.85 per share, Snap-on trades at 20x forward P/E. Check out our free in-depth research report to learn more about why SNA doesn’t pass our bar.
Lockheed Martin (LMT)
Market Cap: $126.5 billion
Headquartered in Maryland, Famous for the F-35 aircraft, Lockheed Martin (NYSE: LMT) specializes in defense, space, homeland security, and information technology products.
Why Should You Dump LMT?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.6% over the last five years was below our standards for the industrials sector
- Earnings per share fell by 3.7% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Eroding returns on capital suggest its historical profit centers are aging
Lockheed Martin is trading at $518.26 per share, or 17.3x forward P/E. Dive into our free research report to see why there are better opportunities than LMT.
Rivian (RIVN)
Market Cap: $19.89 billion
The manufacturer of Amazon’s delivery trucks, Rivian (NASDAQ: RIVN) designs, manufactures, and sells electric vehicles and commercial delivery vans.
Why Is RIVN Not Exciting?
- Flat vehicles delivered show it’s struggled to move its products and might have to lower prices to stimulate growth
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Rivian’s stock price of $18.15 implies a valuation ratio of 2.5x forward price-to-sales. If you’re considering RIVN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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