Whether you see them or not, industrials businesses play a crucial part in our daily activities. But their prominence also brings high exposure to the ups and downs of economic cycles. Luckily, the tide is turning in their favor as the industry’s 18.8% return over the past six months has topped the S&P 500 by 11.5 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 are three industrials stocks best left ignored.
UFP Industries (UFPI)
Market Cap: $6.67 billion
Beginning as a lumber supplier in the 1950s, UFP Industries (NASDAQ:UFPI) is a holding company making building materials for the construction, retail, and industrial sectors.
Why Do We Think UFPI Will Underperform?
- Declining unit sales over the past two years imply it may need to invest in improvements to get back on track
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 20.4% annually, worse than its revenue
- Eroding returns on capital suggest its historical profit centers are aging
UFP Industries’s stock price of $114.45 implies a valuation ratio of 20.8x forward P/E. Read our free research report to see why you should think twice about including UFPI in your portfolio.
Hayward (HAYW)
Market Cap: $3.58 billion
Credited with introducing the first variable-speed pool pump, Hayward (NYSE:HAYW) makes residential and commercial pool equipment and accessories.
Why Does HAYW Give Us Pause?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Earnings per share have dipped by 26.9% annually over the past four years, which is concerning because stock prices follow EPS over the long term
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $16.52 per share, Hayward trades at 20.6x forward P/E. To fully understand why you should be careful with HAYW, check out our full research report (it’s free).
Tri Pointe Homes (TPH)
Market Cap: $3.14 billion
Established in 2009 in California, Tri Pointe Homes (NYSE:TPH) is a United States homebuilder recognized for its innovative and sustainable approach to creating premium, life-enhancing homes.
Why Are We Out on TPH?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 11.2% declines over the past two years
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
Tri Pointe Homes is trading at $36.57 per share, or 17.1x forward P/E. Dive into our free research report to see why there are better opportunities than TPH.
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