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 39.5% gain over the past six months, beating the S&P 500 by 14 percentage points.
Regardless of these results, investors should tread carefully. The diversity of companies in this space means that not all are created equal or well-positioned for the inescapable downturn. With that said, here is one industrials stock poised to generate sustainable market-beating returns and two we’re swiping left on.
Two Industrials Stocks to Sell:
nLIGHT (LASR)
Market Cap: $1.58 billion
Founded by a former CEO and Harvard-educated entrepreneur Scott Keeneyn, nLIGHT (NASDAQ:LASR) offers semiconductor and fiber lasers to the industrial, aerospace & defense, and medical sectors.
Why Are We Out on LASR?
- Annual sales declines of 1.6% for the past two years show its products and services struggled to connect with the market during this cycle
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.4 percentage points
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $31.51 per share, nLIGHT trades at 3,172x forward P/E. To fully understand why you should be careful with LASR, check out our full research report (it’s free for active Edge members).
American Woodmark (AMWD)
Market Cap: $952.5 million
Starting as a small millwork shop, American Woodmark (NASDAQ:AMWD) is a cabinet manufacturing company that helps customers from inspiration to installation.
Why Do We Steer Clear of AMWD?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 9.6% annually over the last two years
- Projected sales decline of 3.1% over the next 12 months indicates demand will continue deteriorating
- Earnings per share have contracted by 1.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
American Woodmark’s stock price of $65.21 implies a valuation ratio of 14.2x forward P/E. Read our free research report to see why you should think twice about including AMWD in your portfolio.
One Industrials Stock to Watch:
ITT (ITT)
Market Cap: $13.34 billion
Playing a crucial role in the development of the first transatlantic television transmission in 1956, ITT (NYSE:ITT) provides motion and fluid handling equipment for various industries
Why Are We Positive On ITT?
- Highly efficient business model is illustrated by its impressive 16.4% operating margin, and its rise over the last five years was fueled by some leverage on its fixed costs
- Free cash flow margin expanded by 15.5 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Industry-leading 18.5% return on capital demonstrates management’s skill in finding high-return investments
ITT is trading at $170.97 per share, or 24.8x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out 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 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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