Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. 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 7.5% over the past six months. This drawdown was disheartening since the S&P 500 held steady.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Keeping that in mind, here are two industrials stocks we think can generate sustainable market-beating returns and one we’re steering clear of.
One Industrials Stock to Sell:
Regal Rexnord (RRX)
Market Cap: $8.01 billion
Headquartered in Milwaukee, Regal Rexnord (NYSE: RRX) provides power transmission and industrial automation products.
Why Is RRX Not Exciting?
- 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
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 7.9% annually while its revenue grew
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.1 percentage points
At $122 per share, Regal Rexnord trades at 11.7x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than RRX.
Two Industrials Stocks to Watch:
Parsons (PSN)
Market Cap: $6.31 billion
Delivering aerospace technology during the Cold War-era, Parsons (NYSE: PSN) offers engineering, construction, and cybersecurity solutions for the infrastructure and defense sectors.
Why Are We Positive On PSN?
- Annual revenue growth of 26.8% over the last two years was superb and indicates its market share increased during this cycle
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 34.5% exceeded its revenue gains over the last two years
- Historical investments are beginning to pay off as its returns on capital are growing
Parsons is trading at $60 per share, or 14.9x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.
Thermon (THR)
Market Cap: $987.5 million
Creating the first packaged tracing systems, Thermon (NYSE: THR) is a leading provider of engineered industrial process heating solutions for process industries.
Why Does THR Stand Out?
- Offerings are difficult to replicate at scale and result in a premier gross margin of 42.3%
- Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Free cash flow margin grew by 3.2 percentage points over the last five years, giving the company more chips to play with
Thermon’s stock price of $29.43 implies a valuation ratio of 14.9x forward price-to-earnings. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
