Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. But their prominence also brings high exposure to the ups and downs of economic cycles. Luckily, the tide is turning in their favor as the industry’s 19.6% return over the past six months has topped the S&P 500 by 4.3 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. Keeping that in mind, here are three industrials stocks we’re swiping left on.
Tecnoglass (TGLS)
Market Cap: $2.39 billion
The first-ever Colombian company to trade on the NASDAQ, Tecnoglass (NYSE: TGLS) is a manufacturer of architectural glass, windows, and aluminum products.
Why Does TGLS Give Us Pause?
- Annual revenue growth of 7.3% over the last two years was below our standards for the industrials sector
- Earnings per share have dipped by 3.2% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Free cash flow margin shrank by 10.4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Tecnoglass is trading at $51.34 per share, or 13.1x forward P/E. Check out our free in-depth research report to learn more about why TGLS doesn’t pass our bar.
3M (MMM)
Market Cap: $89.92 billion
Producers of the first asthma inhaler, 3M Company (NYSE: MMM) is a global conglomerate known for products in industries like healthcare, safety, electronics, and consumer goods.
Why Are We Out on MMM?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Earnings per share have contracted by 1.5% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3M’s stock price of $169.15 implies a valuation ratio of 20.5x forward P/E. Read our free research report to see why you should think twice about including MMM in your portfolio.
Ball (BALL)
Market Cap: $13.09 billion
Started with a $200 loan in 1880, Ball (NYSE: BLL) manufactures aluminum packaging for beverages, personal care, and household products as well as aerospace systems and other technologies.
Why Do We Avoid BALL?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- High input costs result in an inferior gross margin of 21.5% that must be offset through higher volumes
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.7% for the last five years
At $48.86 per share, Ball trades at 12.6x forward P/E. To fully understand why you should be careful with BALL, check out our full research report (it’s free for active Edge members).
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