Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. 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 14.6% for the sector - higher than the S&P 500’s 5.2% 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. Keeping that in mind, here are three industrials stocks we’re passing on.
Heartland Express (HTLD)
Market Cap: $1.04 billion
Founded by the son of a trucker, Heartland Express (NASDAQ:HTLD) offers full-truckload deliveries across the United States and Mexico.
Why Is HTLD Risky?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 18.5% annually over the last two years
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.1 percentage points
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $13.47 per share, Heartland Express trades at 288.9x forward P/E. To fully understand why you should be careful with HTLD, check out our full research report (it’s free).
Ford (F)
Market Cap: $47.65 billion
Established to make automobiles accessible to a broader segment of the population, Ford (NYSE:F) designs, manufactures, and sells a variety of automobiles, trucks, and electric vehicles.
Why Should You Sell F?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 3.4% for the last two years
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- 8× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Ford’s stock price of $11.87 implies a valuation ratio of 7.8x forward P/E. Dive into our free research report to see why there are better opportunities than F.
Crown Holdings (CCK)
Market Cap: $11.07 billion
Formerly Crown Cork & Seal, Crown Holdings (NYSE:CCK) produces packaging products for consumer marketing companies, including food, beverage, household, and industrial products.
Why Is CCK Not Exciting?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 1.4% for the last five years
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 20.3%
- Earnings per share lagged its peers over the last five years as they only grew by 3.8% annually
Crown Holdings is trading at $100.18 per share, or 12.1x forward P/E. If you’re considering CCK for your portfolio, see our FREE research report to learn more.
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