Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Sure, they are at the whim of macroeconomic factors that influence capital spending (like interest rates), but the industry has held its ground over the past six months as its 4.5% return was almost identical to the S&P 500.
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. Taking that into account, here is one industrials stock boasting a durable advantage and two we’re swiping left on.
Market Cap: $523.9 million
Acquiring Goodyear’s farm tire business in 2005, Titan (NSYE:TWI) is a manufacturer and supplier of wheels, tires, and undercarriages used in off-highway vehicles such as construction vehicles.
Why Do We Pass on TWI?
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Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.2% annually over the last two years
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Waning returns on capital imply its previous profit engines are losing steam
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Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Titan International is trading at $8.48 per share, or 23.1x forward P/E. Check out our free in-depth research report to learn more about why TWI doesn’t pass our bar.
Market Cap: $56.19 billion
Founded by the inventor of air conditioning, Carrier Global (NYSE:CARR) manufactures heating, ventilation, air conditioning, and refrigeration products.
Why Does CARR Fall Short?
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Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
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5.3 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
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Waning returns on capital imply its previous profit engines are losing steam
Carrier Global’s stock price of $66.65 implies a valuation ratio of 20.1x forward P/E. To fully understand why you should be careful with CARR, check out our full research report (it’s free).
Market Cap: $3.49 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 Could TGLS Be a Winner?
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Annual revenue growth of 20.3% over the last five years was superb and indicates its market share increased during this cycle
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Healthy operating margin of 27.3% shows it’s a well-run company with efficient processes, and its rise over the last five years was fueled by some leverage on its fixed costs
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Industry-leading 28.9% return on capital demonstrates management’s skill in finding high-return investments, and its returns are climbing as it finds even more attractive growth opportunities