1 Industrials Stock with Solid Fundamentals and 2 That Underwhelm

Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. But this role also comes with a demand profile tethered to the ebbs and flows of the broader economy. Thankfully, industrial end markets were stable over the past six months as the industry’s 3.2% gain has nearly mirrored 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 is one industrials stock boasting a durable advantage and two that may face trouble.

Two Industrials Stocks to Sell:

Standex (SXI)

Market Cap: $2.26 billion

Holding over 500 patents globally, Standex (NYSE:SXI) is a manufacturer and distributor of industrial components for various sectors.

Why Are We Hesitant About SXI?

1. 3.3% annual revenue growth over the last two years was slower than its industrials peers
2. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 7.8% annually
3. 4.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

Standex’s stock price of $187.05 implies a valuation ratio of 21.9x forward P/E. Read our free research report to see why you should think twice about including SXI in your portfolio.

MSC Industrial (MSM)

Market Cap: $4.76 billion

Founded in NYC’s Little Italy, MSC Industrial Direct (NYSE:MSM) provides industrial supplies and equipment, offering vast and reliable selection for customers such as contractors

Why Do We Steer Clear of MSM?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.5%
3. Earnings per share fell by 5.6% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable

MSC Industrial is trading at $85.45 per share, or 22.5x forward P/E. Check out our free in-depth research report to learn more about why MSM doesn’t pass our bar.

One Industrials Stock to Watch:

W.W. Grainger (GWW)

Market Cap: $44.88 billion

Founded as a supplier of motors, W.W. Grainger (NYSE:GWW) provides maintenance, repair, and operating (MRO) supplies and services to businesses and institutions.

Why Could GWW Be a Winner?

1. Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
2. Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
3. Industry-leading 36.7% return on capital demonstrates management’s skill in finding high-return investments, and its returns are growing as it capitalizes on even better market opportunities

At $938.27 per share, W.W. Grainger trades at 21.9x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

Stocks We Like Even More

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