3 Industrials Stocks in Hot Water

Whether you see them or not, industrials businesses play a crucial part in our daily activities. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the market seems convinced that demand will slow. Due to this bearish outlook, the industry has tumbled by 2.3% over the past six months. This performance was discouraging since the S&P 500 held its ground.

Investors should tread carefully as timing cyclical companies is a challenging task, and any misstep can have you catching a falling knife. With that said, here are three industrials stocks we’re steering clear of.

Lincoln Electric (LECO)

Market Cap: $11.23 billion

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

Why Are We Cautious About LECO?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.1%
3. Earnings per share lagged its peers over the last two years as they only grew by 5.4% annually

At $201.20 per share, Lincoln Electric trades at 21.3x forward P/E. Read our free research report to see why you should think twice about including LECO in your portfolio.

Insteel (IIIN)

Market Cap: $679.6 million

Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE:IIIN) provides steel wire reinforcing products for concrete.

Why Do We Avoid IIIN?

1. Sales tumbled by 13.4% annually over the last two years, showing market trends are working against its favor during this cycle
2. Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 44.9% annually, worse than its revenue
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Insteel is trading at $35.01 per share, or 17.9x forward P/E. To fully understand why you should be careful with IIIN, check out our full research report (it’s free).

Global Industrial (GIC)

Market Cap: $1.02 billion

Formerly known as Systemax, Global Industrial (NYSE:GIC) distributes industrial and commercial products to businesses and institutions.

Why Do We Pass on GIC?

1. Muted 5.7% annual revenue growth over the last four years shows its demand lagged behind its industrials peers
2. Incremental sales over the last two years were much less profitable as its earnings per share fell by 6.8% annually while its revenue grew
3. Waning returns on capital imply its previous profit engines are losing steam

Global Industrial’s stock price of $26.49 implies a valuation ratio of 16.6x forward P/E. If you’re considering GIC for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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