1 Industrials Stock Worth Your Attention and 2 We Question

Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 23.9% gain over the past six months, beating the S&P 500 by 8.1 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 is one resilient industrials stock at the top of our wish list and two we’re swiping left on.

Two Industrials Stocks to Sell:

Caterpillar (CAT)

Market Cap: $198.1 billion

With its iconic yellow machinery working on construction sites, Caterpillar (NYSE:CAT) manufactures construction equipment like bulldozers, excavators, and parts and maintenance services.

Why Are We Wary of CAT?

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. Estimated sales growth of 5% for the next 12 months is soft and implies weaker demand
3. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 2.7% annually

Caterpillar’s stock price of $422.96 implies a valuation ratio of 21.2x forward P/E. Read our free research report to see why you should think twice about including CAT in your portfolio.

A. O. Smith (AOS)

Market Cap: $10.36 billion

Credited with the invention of the glass-lined water heater, A.O. Smith (NYSE:AOS) manufactures water heating and treatment products for various industries.

Why Are We Hesitant About AOS?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 2.7% annually
3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $75 per share, A. O. Smith trades at 18.7x forward P/E. If you’re considering AOS for your portfolio, see our FREE research report to learn more.

One Industrials Stock to Buy:

EMCOR (EME)

Market Cap: $27.82 billion

Through its network of over 70 subsidiaries, EMCOR (NYSE:EME) provides electrical, mechanical, and building construction and services

Why Is EME a Good Business?

1. Annual revenue growth of 15.6% over the last two years was superb and indicates its market share increased during this cycle
2. Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
3. Returns on capital are climbing as management makes more lucrative bets

EMCOR is trading at $636.90 per share, or 25.7x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

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