Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the industry’s six-month return of 5.7% has fallen short of the S&P 500’s 9% rise.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Taking that into account, here are two resilient industrials stocks at the top of our wish list and one we’re steering clear of.
One Industrials Stock to Sell:
H&E Equipment Services (HEES)
Market Cap: $3.2 billion
Founded after recognizing a growth trend along the Mississippi River and opportunities developing in the earthmoving and construction equipment business, H&E (NASDAQ:HEES) offers machinery for companies to purchase or rent.
Why Are We Wary of HEES?
- Muted 2.4% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Estimated sales growth of 1.3% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin dropped by 22.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $87.50 per share, H&E Equipment Services trades at 21.7x forward price-to-earnings. To fully understand why you should be careful with HEES, check out our full research report (it’s free).
Two Industrials Stocks to Buy:
CSW (CSWI)
Market Cap: $5.28 billion
With over two centuries of combined operations manufacturing and supplying, CSW (NASDAQ:CSWI) offers special chemicals, coatings, sealants, and lubricants for various industries.
Why Are We Backing CSWI?
- Market share has increased this cycle as its 17.8% annual revenue growth over the last five years was exceptional
- Additional sales over the last two years increased its profitability as the 21.9% annual growth in its earnings per share outpaced its revenue
- Strong free cash flow margin of 15% enables it to reinvest or return capital consistently, and its growing cash flow gives it even more resources to deploy
CSW is trading at $318.12 per share, or 34.2x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free.
Aris Water (ARIS)
Market Cap: $861 million
Primarily serving the oil and gas industry, Aris Water (NYSE:ARIS) is a provider of water handling and recycling solutions.
Why Will ARIS Outperform?
- Products are reaching more customers as its unit sales averaged 10.3% growth over the past two years
- Additional sales over the last two years increased its profitability as the 27% annual growth in its earnings per share outpaced its revenue
- Free cash flow turned positive over the last five years, showing the company is at an important crossroads
Aris Water’s stock price of $27.69 implies a valuation ratio of 19.8x forward price-to-earnings. Is now the right 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 Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
