1 Industrials Stock to Research Further and 2 Facing Headwinds

Even if they go mostly unnoticed, industrial businesses are the backbone of our country. But this role also comes with a demand profile tethered to the ebbs and flows of the broader economy. Thankfully, industrial end markets were stable over the past six months as the industry’s 11.4% gain has nearly mirrored the S&P 500.

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 industrials stock boasting a durable advantage and two we’re swiping left on.

Two Industrials Stocks to Sell:

Astec (ASTE)

Market Cap: $1.02 billion

Inventing the first ever double-barrel hot-mix asphalt plant, Astec (NASDAQ:ASTE) provides machines and equipment for building roads, processing raw materials, and producing concrete.

Why Are We Wary of ASTE?

1. Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 28.2% declines over the past two years
2. High input costs result in an inferior gross margin of 23.9% that must be offset through higher volumes
3. Cash burn makes us question whether it can achieve sustainable long-term growth

At $44.66 per share, Astec trades at 13.9x forward P/E. To fully understand why you should be careful with ASTE, check out our full research report (it’s free for active Edge members).

Covenant Logistics (CVLG)

Market Cap: $558.6 million

Started with 25 trucks and 50 trailers, Covenant Logistics (NASDAQ:CVLG) is a provider of expedited long haul freight services, offering a range of logistics solutions.

Why Should You Sell CVLG?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
2. 12.3 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. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Covenant Logistics’s stock price of $22.30 implies a valuation ratio of 12.1x forward P/E. Read our free research report to see why you should think twice about including CVLG in your portfolio.

One Industrials Stock to Watch:

ITT (ITT)

Market Cap: $14.99 billion

Playing a crucial role in the development of the first transatlantic television transmission in 1956, ITT (NYSE:ITT) provides motion and fluid handling equipment for various industries

Why Are We Fans of ITT?

1. Healthy operating margin of 17.5% shows it’s a well-run company with efficient processes
2. Free cash flow margin grew by 17.4 percentage points over the last five years, giving the company more chips to play with
3. ROIC punches in at 20.4%, illustrating management’s expertise in identifying profitable investments

ITT is trading at $174.24 per share, or 23.7x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.

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