3 Industrials Stocks We Steer Clear Of

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 9.7% return over the past six months has topped the S&P 500 by 4 percentage points.

Regardless of these results, investors should tread carefully. The diversity of companies in this space means that not all are created equal or well-positioned for the inescapable downturn. On that note, here are three industrials stocks we’re passing on.

Littelfuse (LFUS)

Market Cap: $6.53 billion

The developer of the first blade-type automotive fuse, Littelfuse (NASDAQ:LFUS) provides electrical protection and control components for the automotive, industrial, electronics, and telecommunications industries.

Why Are We Hesitant About LFUS?

1. Annual sales declines of 4.7% for the past two years show its products and services struggled to connect with the market during this cycle
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Eroding returns on capital suggest its historical profit centers are aging

Littelfuse is trading at $263.42 per share, or 25.3x forward P/E. If you’re considering LFUS for your portfolio, see our FREE research report to learn more.

Plug Power (PLUG)

Market Cap: $1.92 billion

Powering forklifts for Walmart’s distribution centers, Plug Power (NASDAQ:PLUG) provides hydrogen fuel cells used to power electric motors.

Why Do We Steer Clear of PLUG?

1. Annual sales declines of 12.6% for the past two years show its products and services struggled to connect with the market during this cycle
2. Free cash flow margin dropped by 6,283 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

At $1.65 per share, Plug Power trades at 2.3x forward price-to-sales. Dive into our free research report to see why there are better opportunities than PLUG.

Shyft (SHYF)

Market Cap: $2.91 billion

Notably receiving an order from FedEx for electric vehicles, Shyft (NASDAQ:SHYF) offers specialty vehicles and truck bodies for various industries.

Why Do We Think SHYF Will Underperform?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 13.7% annually over the last two years
2. 6.8 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
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Shyft’s stock price of $12.54 implies a valuation ratio of 12.2x forward P/E. Read our free research report to see why you should think twice about including SHYF in your portfolio.

High-Quality Stocks for All Market Conditions

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