3 Industrials Stocks in Hot Water
Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Unfortunately, this role also comes with a demand profile tethered to the ebbs and flows of the broader economy, and investors seem to be forecasting a downturn - over the past six months, the industry has pulled back by 10.4%. This drop was worse than the S&P 500's 2% decline.
Investors should tread carefully as timing cyclical companies is a challenging task, and any misstep can have you catching a falling knife. Keeping that in mind, here are three industrials stocks we're steering clear of.
Market Cap: $130.3 billion
Revolutionizing agriculture with the first self-polishing cast-steel plow in the 1800s, Deere (NYSE:DE) manufactures and distributes advanced agricultural, construction, forestry, and turf care equipment.
Why Do We Avoid DE?
Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.2% annually over the last two years
7.1 percentage point decline in its free cash flow margin over the last five years reflects the company's increased investments to defend its market position
6× net-debt-to-EBITDA ratio shows it's overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $480.90 per share, Deere trades at 23.8x forward P/E. To fully understand why you should be careful with DE, check out our full research report (it's free).
Market Cap: $38.04 billion
Credited with inventing the first hydraulic passenger elevator, Otis Worldwide (NYSE:OTIS) is an elevator and escalator manufacturing, installation and service company.
Why Does OTIS Give Us Pause?
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
Estimated sales growth of 3.9% for the next 12 months is soft and implies weaker demand
2.8 percentage point decline in its free cash flow margin over the last five years reflects the company's increased investments to defend its market position
Otis's stock price of $96.39 implies a valuation ratio of 23x forward P/E. Read our free research report to see why you should think twice about including OTIS in your portfolio, it's free.
Market Cap: $863.7 million
California's oldest company, Ducommun (NYSE:DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.
Why Do We Think DCO Will Underperform?
New orders were hard to come by as its average backlog growth of 4.9% over the past two years underwhelmed
Performance over the past two years was negatively impacted by new share issuances as its earnings per share were flat while its revenue grew
ROIC of 4.6% reflects management's challenges in identifying attractive investment opportunities
Ducommun is trading at $58.11 per share, or 14.8x forward P/E. If you're considering DCO for your portfolio, see our FREE research report to learn more.
Market indices reached historic highs following Donald Trump's presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we're leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market 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 Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
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