3 Industrials Stocks We Steer Clear Of

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 20.5% gain over the past six months, beating the S&P 500 by 5.2 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. Keeping that in mind, here are three industrials stocks best left ignored.

Alamo (ALG)

Market Cap: $1.94 billion

Expanding its markets through acquisitions since its founding, Alamo (NSYE:ALG) designs, manufactures, and services vegetation management and infrastructure maintenance equipment for governmental, industrial, and agricultural use.

Why Does ALG Fall Short?

1. Sales tumbled by 1.3% annually over the last two years, showing market trends are working against its favor during this cycle
2. Gross margin of 25.5% reflects its high production costs
3. Earnings per share have dipped by 5.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term

Alamo’s stock price of $160.37 implies a valuation ratio of 14.2x forward P/E. To fully understand why you should be careful with ALG, check out our full research report (it’s free for active Edge members).

Hillman (HLMN)

Market Cap: $1.73 billion

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

Why Are We Wary of HLMN?

1. Annual revenue growth of 1.9% over the last two years was below our standards for the industrials sector
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

At $8.73 per share, Hillman trades at 15.4x forward P/E. Check out our free in-depth research report to learn more about why HLMN doesn’t pass our bar.

Vulcan Materials (VMC)

Market Cap: $39.27 billion

Founded in 1909, Vulcan Materials (NYSE:VMC) is a producer of construction aggregates, primarily crushed stone, sand, and gravel.

Why Are We Cautious About VMC?

1. Number of tons shipped has disappointed over the past two years, indicating weak demand for its offerings
2. Estimated sales growth of 4% for the next 12 months is soft and implies weaker demand
3. Gross margin of 25.2% reflects its high production costs

Vulcan Materials is trading at $297.24 per share, or 31.5x forward P/E. If you’re considering VMC for your portfolio, see our FREE research report to learn more.

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