Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. But their prominence also brings high exposure to the ups and downs of economic cycles. Luckily, the tide is turning in their favor as the industry’s 26.8% return over the past six months has topped the S&P 500 by 8.4 percentage points.
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 best left ignored.
Kirby (KEX)
Market Cap: $4.69 billion
Transporting goods along all U.S. coasts, Kirby (NYSE:KEX) provides inland and coastal marine transportation services.
Why Are We Cautious About KEX?
- 4.4% annual revenue growth over the last two years was slower than its industrials peers
- Free cash flow margin dropped by 7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- ROIC of 3.2% reflects management’s challenges in identifying attractive investment opportunities
Kirby is trading at $83.63 per share, or 12.1x forward P/E. Check out our free in-depth research report to learn more about why KEX doesn’t pass our bar.
Park-Ohio (PKOH)
Market Cap: $297.9 million
Based in Cleveland, Park-Ohio (NASDAQ:PKOH) provides supply chain management services, capital equipment, and manufactured components.
Why Does PKOH Give Us Pause?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Gross margin of 15.4% reflects its high production costs
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
At $21.37 per share, Park-Ohio trades at 6.4x forward P/E. To fully understand why you should be careful with PKOH, check out our full research report (it’s free).
Hub Group (HUBG)
Market Cap: $2.05 billion
Started with $10,000, Hub Group (NASDAQ:HUBG) is a provider of intermodal, truck brokerage, and logistics services, facilitating transportation solutions for businesses worldwide.
Why Do We Pass on HUBG?
- Flat unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Sales were less profitable over the last two years as its earnings per share fell by 37.1% annually, worse than its revenue declines
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Hub Group’s stock price of $33.53 implies a valuation ratio of 15.8x forward P/E. If you’re considering HUBG for your portfolio, see our FREE research report to learn more.
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