Whether you see them or not, industrials businesses play a crucial part in our daily activities. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 12.8% for the sector - higher than the S&P 500’s 2.5% return.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. On that note, here are three industrials stocks that may face trouble.
Hexcel (HXL)
Market Cap: $6.34 billion
Founded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE: HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.
Why Are We Hesitant About HXL?
- Sales trends were unexciting over the last two years as its 2.9% annual growth was below the typical industrials company
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Underwhelming 6.4% return on capital reflects management’s difficulties in finding profitable growth opportunities
Hexcel’s stock price of $83.56 implies a valuation ratio of 38x forward P/E. Dive into our free research report to see why there are better opportunities than HXL.
Schneider (SNDR)
Market Cap: $4.96 billion
Employing thousands of drivers across the country to make deliveries, Schneider (NYSE: SNDR) makes full truckload and intermodal deliveries regionally and across borders.
Why Do We Avoid SNDR?
- Sales trends were unexciting over the last two years as its 1.6% annual growth was below the typical industrials company
- Earnings per share have dipped by 13.1% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Waning returns on capital imply its previous profit engines are losing steam
Schneider is trading at $28.29 per share, or 33.6x forward P/E. Read our free research report to see why you should think twice about including SNDR in your portfolio.
International Paper (IP)
Market Cap: $19.33 billion
Established in 1898, International Paper (NYSE: IP) produces containerboard, pulp, paper, and materials used in packaging and printing applications.
Why Should You Dump IP?
- The company has faced growth challenges as its 3.9% annual revenue increases over the last five years fell short of other industrials companies
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.4 percentage points
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $36.50 per share, International Paper trades at 23.4x forward P/E. Dive into our free research report to see why there are better opportunities than IP.
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