Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Unfortunately, this role also comes with a demand profile tethered to the ebbs and flows of the broader economy, and investors seem to be forecasting a downturn - over the past six months, the industry has pulled back by 10.7%. This drop was worse than the S&P 500’s 1.9% fall.
Some companies can grow regardless of the economic backdrop, but the odds aren’t great for the ones we’re analyzing today. On that note, here are three industrials stocks we’re swiping left on.
Hexcel (HXL)
Market Cap: $4.25 billion
Founded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE: HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.
Why Are We Wary of HXL?
- Sales tumbled by 3.8% annually over the last five years, showing market trends are working against its favor during this cycle
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8 percentage points
At $53.12 per share, Hexcel trades at 23.3x forward P/E. If you’re considering HXL for your portfolio, see our FREE research report to learn more.
Generac (GNRC)
Market Cap: $7.45 billion
With its name deriving from a combination of “generating” and “AC”, Generac (NYSE: GNRC) offers generators and other power products for residential, industrial, and commercial use.
Why Should You Sell GNRC?
- Sales stagnated over the last two years and signal the need for new growth strategies
- 7.1 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
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Generac’s stock price of $126.42 implies a valuation ratio of 15.5x forward P/E. Check out our free in-depth research report to learn more about why GNRC doesn’t pass our bar.
Mercury Systems (MRCY)
Market Cap: $2.93 billion
Founded in 1981, Mercury Systems (NASDAQ: MRCY) specializes in providing processing subsystems and components for primarily defense applications.
Why Is MRCY Risky?
- 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
- Issuance of new shares over the last five years caused its earnings per share to fall by 28% annually while its revenue grew
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Mercury Systems is trading at $50 per share, or 70x forward P/E. If you’re considering MRCY for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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 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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.
