Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the market seems to be baking in a prolonged downturn as the industry has shed 16.4% over the past six months. This performance was worse than the S&P 500’s 8.6% decline.
Some companies can grow regardless of the economic backdrop, but the odds aren’t great for the ones we’re analyzing today. Keeping that in mind, here are three industrials stocks we’re swiping left on.
Advanced Energy (AEIS)
Market Cap: $3.09 billion
Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQ: AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.
Why Do We Steer Clear of AEIS?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 10.4% annually over the last two years
- 6.7 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
- Diminishing returns on capital suggest its earlier profit pools are drying up
Advanced Energy is trading at $86.04 per share, or 16.5x forward price-to-earnings. To fully understand why you should be careful with AEIS, check out our full research report (it’s free).
Corning (GLW)
Market Cap: $33.94 billion
Supplying windows for some of the United States’s earliest spacecraft, Corning (NYSE: GLW) provides glass and other electronic components for the consumer electronics, telecommunications, automotive, and healthcare industries.
Why Do We Think GLW Will Underperform?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.5% annually over the last two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam
Corning’s stock price of $41.22 implies a valuation ratio of 17x forward price-to-earnings. Check out our free in-depth research report to learn more about why GLW doesn’t pass our bar.
Allegion (ALLE)
Market Cap: $10.42 billion
Allegion plc (NYSE: ALLE) is a provider of security products and solutions that keep people and assets safe and secure in various environments.
Why Does ALLE Give Us Pause?
- 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
- Estimated sales growth of 2.6% for the next 12 months implies demand will slow from its two-year trend
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $123.12 per share, Allegion trades at 15.6x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than ALLE.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum 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.
