2 Industrials Stocks to Keep an Eye On and 1 That Underwhelm

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 18.8% gain over the past six months, beating the S&P 500 by 8.8 percentage points.

Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. With that said, here are two industrials stocks boasting durable advantages and one we’re passing on.

One Industrials Stock to Sell:

Greenbrier (GBX)

Market Cap: $1.56 billion

Having designed the industry’s first double-decker railcar in the 1980s, Greenbrier (NYSE:GBX) supplies the freight rail transportation industry with railcars and related services.

Why Does GBX Worry Us?

1. Declining unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
2. Gross margin of 14% is below its competitors, leaving less money to invest in areas like marketing and R&D
3. Cash-burning history makes us doubt the long-term viability of its business model

Greenbrier’s stock price of $50.47 implies a valuation ratio of 12.9x forward P/E. Dive into our free research report to see why there are better opportunities than GBX.

Two Industrials Stocks to Watch:

Core & Main (CNM)

Market Cap: $10.07 billion

Formerly a division of industrial distributor HD Supply, Core & Main (NYSE:CNM) is a provider of water, wastewater, and fire protection products and services.

Why Do We Like CNM?

1. Annual revenue growth of 17% over the past five years was outstanding, reflecting market share gains 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. Free cash flow margin expanded by 8 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends

At $53.20 per share, Core & Main trades at 21.7x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.

KBR (KBR)

Market Cap: $5.44 billion

Known for projects like the construction of Guantanamo Bay, KBR provides professional services and technologies, specializing in engineering, construction, and government services sectors.

Why Does KBR Stand Out?

1. Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
2. Share repurchases have amplified shareholder returns as its annual earnings per share growth of 17.9% exceeded its revenue gains over the last five years
3. Returns on capital are climbing as management makes more lucrative bets

KBR is trading at $42.84 per share, or 11x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

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