Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 19.9% gain over the past six months, beating the S&P 500 by 10.1 percentage points.
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 are three industrials stocks we’re passing on.
Graco (GGG)
Market Cap: $12.62 billion
Founded in 1926, Graco (NYSE: GGG) is an industrial company specializing in the development and manufacturing of fluid-handling systems and products.
Why Are We Wary of GGG?
- Muted 2.1% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Earnings per share were flat over the last two years and fell short of the peer group average
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $76.62 per share, Graco trades at 24.1x forward P/E. Check out our free in-depth research report to learn more about why GGG doesn’t pass our bar.
GATX (GATX)
Market Cap: $6.12 billion
Originally founded to ship beer, GATX (NYSE: GATX) provides leasing and management services for railcars and other transportation assets globally.
Why Does GATX Fall Short?
- Free cash flow margin dropped by 217.1 percentage points over the last five years, implying the company increased its investment activities to fend off competitors
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
GATX’s stock price of $172.36 implies a valuation ratio of 16.7x forward P/E. Read our free research report to see why you should think twice about including GATX in your portfolio.
Ball (BALL)
Market Cap: $15.05 billion
Started with a $200 loan in 1880, Ball (NYSE: BLL) manufactures aluminum packaging for beverages, personal care, and household products as well as aerospace systems and other technologies.
Why Does BALL Worry Us?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Gross margin of 21.3% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.3% for the last five years
Ball is trading at $56.98 per share, or 13.9x forward P/E. Dive into our free research report to see why there are better opportunities than BALL.
High-Quality Stocks for All Market Conditions
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
