3 Industrials Stocks with Open Questions

Whether you see them or not, industrials businesses play a crucial part in our daily activities. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 22.7% for the sector - higher than the S&P 500’s 17.4% return.

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 that may face trouble.

Lincoln Electric (LECO)

Market Cap: $13.36 billion

Headquartered in Ohio, Lincoln Electric (NASDAQ:LECO) manufactures and sells welding equipment for various industries.

Why Are We Hesitant About LECO?

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. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 6.4%
3. Earnings per share lagged its peers over the last two years as they only grew by 5.2% annually

At $242.16 per share, Lincoln Electric trades at 24.9x forward P/E. Read our free research report to see why you should think twice about including LECO in your portfolio.

Manitowoc (MTW)

Market Cap: $356.7 million

Contracted by the United States Navy during WWII, Manitowoc (NYSE:MTW) provides cranes and lifting equipment.

Why Do We Pass on MTW?

1. Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 15.3% declines over the past two years
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 17.6% annually
3. 6.7 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

Manitowoc’s stock price of $10.06 implies a valuation ratio of 20.7x forward P/E. Dive into our free research report to see why there are better opportunities than MTW.

Hillman (HLMN)

Market Cap: $1.93 billion

Established when Max Hillman purchased a franchise operation, Hillman (NASDAQ:HLMN) designs, manufactures, and sells industrial equipment and systems for various sectors.

Why Do We Think Twice About HLMN?

1. Muted 1.6% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
2. Operating margin of 3.9% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
3. ROIC of 3% reflects management’s challenges in identifying attractive investment opportunities

Hillman is trading at $9.78 per share, or 17.8x forward P/E. If you’re considering HLMN for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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