3 Industrials Stocks We Think Twice About

Whether you see them or not, industrials businesses play a crucial part in our daily activities. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 23.7% gain over the past six months, beating the S&P 500 by 13.2 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. With that said, here are three industrials stocks we’re swiping left on.

MYR Group (MYRG)

Market Cap: $2.91 billion

Constructing electrical and phone lines in the American Midwest dating back to the 1890s, MYR Group (NASDAQ:MYRG) is a specialty contractor in the electrical construction industry.

Why Should You Dump MYRG?

1. Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 2.4% declines over the past two years
2. Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 4.6% annually
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $185.50 per share, MYR Group trades at 26x forward P/E. Dive into our free research report to see why there are better opportunities than MYRG.

Landstar (LSTR)

Market Cap: $4.59 billion

Covering billions of miles throughout North America, Landstar (NASDAQ:LSTR) is a transportation company specializing in freight and last-mile delivery services.

Why Do We Think LSTR Will Underperform?

1. Sales tumbled by 12.7% annually over the last two years, showing market trends are working against its favor during this cycle
2. Earnings per share have contracted by 27.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Landstar’s stock price of $132.33 implies a valuation ratio of 23.8x forward P/E. Read our free research report to see why you should think twice about including LSTR in your portfolio.

Silgan Holdings (SLGN)

Market Cap: $5.02 billion

Established in 1987, Silgan Holdings (NYSE:SLGN) is a supplier of rigid packaging for consumer goods products, specializing in metal containers, closures, and plastic packaging.

Why Do We Steer Clear of SLGN?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. High input costs result in an inferior gross margin of 16.9% that must be offset through higher volumes
3. Poor free cash flow margin of 1.5% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

Silgan Holdings is trading at $46.92 per share, or 11x forward P/E. To fully understand why you should be careful with SLGN, check out our full research report (it’s free).

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