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 market seems to be baking in a prolonged downturn as the industry has shed 13% over the past six months. This drawdown was worse than the S&P 500’s 3.6% loss.
Investors should tread carefully as timing cyclical companies is a challenging task, and any misstep can have you catching a falling knife. Taking that into account, here are three industrials stocks we’re passing on.
Saia (SAIA)
Market Cap: $7.02 billion
Pivoting its business model after realizing there was more success in delivering produce than selling it, Saia (NASDAQ:SAIA) is a provider of freight transportation solutions.
Why Is SAIA Not Exciting?
- Disappointing tons shipped over the past two years imply it may need to invest in improvements to get back on track
- Earnings per share have dipped by 4.9% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Free cash flow margin shrank by 15.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $265.22 per share, Saia trades at 16.9x forward P/E. Check out our free in-depth research report to learn more about why SAIA doesn’t pass our bar.
Fortune Brands (FBIN)
Market Cap: $6.04 billion
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE:FBIN) makes plumbing, security, and outdoor living products.
Why Do We Avoid FBIN?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Efficiency has decreased over the last five years as its operating margin fell by 7.8 percentage points
- Performance over the past two years shows each sale was less profitable, as its earnings per share fell by 12.9% annually
Fortune Brands is trading at $50.26 per share, or 11.7x forward P/E. If you’re considering FBIN for your portfolio, see our FREE research report to learn more.
KB Home (KBH)
Market Cap: $3.68 billion
The first homebuilder to be listed on the NYSE, KB Home (NYSE:KB) is a homebuilding company targeting the first-time home buyer and move-up buyer markets.
Why Should You Sell KBH?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 22.9% decline in its backlog
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Free cash flow margin dropped by 5.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
KB Home’s stock price of $51.54 implies a valuation ratio of 6.3x forward P/E. Dive into our free research report to see why there are better opportunities than KBH.
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio 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 176% over the last five years.
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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.