3 Industrials Stocks Walking a Fine Line

Even if they go mostly unnoticed, industrial businesses are the backbone of our country. 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 23.5% for the sector - higher than the S&P 500’s 7.6% return.

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. Keeping that in mind, here are three industrials stocks best left ignored.

Terex (TEX)

Market Cap: $7.84 billion

With humble beginnings as a dump truck company, Terex (NYSE:TEX) today manufactures lifting and material handling equipment designed to move and hoist heavy goods and materials.

Why Are We Hesitant About TEX?

1. Sales trends were unexciting over the last two years as its 2.6% annual growth was below the typical industrials company
2. Earnings per share have contracted by 33.7% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Terex is trading at $67.90 per share, or 13.9x forward P/E. Check out our free in-depth research report to learn more about why TEX doesn’t pass our bar.

Byrna (BYRN)

Market Cap: $289.1 million

Providing civilians with tools to disable, disarm, and deter would-be assailants, Byrna (NASDAQ:BYRN) is a provider of non-lethal weapons.

Why Is BYRN Not Exciting?

1. Operating margin of -0.1% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

At $13.04 per share, Byrna trades at 26.7x forward P/E. Read our free research report to see why you should think twice about including BYRN in your portfolio.

D.R. Horton (DHI)

Market Cap: $47.45 billion

One of the largest homebuilding companies in the U.S., D.R. Horton (NYSE:DHI) builds a variety of new construction homes across multiple markets.

Why Do We Steer Clear of DHI?

1. Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 13.7% declines over the past two years
2. Earnings per share have dipped by 11% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. Eroding returns on capital suggest its historical profit centers are aging

D.R. Horton’s stock price of $164.15 implies a valuation ratio of 15.7x forward P/E. If you’re considering DHI for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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