Whether you see them or not, industrials businesses play a crucial part in our daily activities. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the industry has underperformed the market over the past six months as its 2.4% return lagged the S&P 500 by 4.7 percentage points.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Keeping that in mind, here is one industrials stock poised to generate sustainable market-beating returns and two we’re steering clear of.
Two Industrials Stocks to Sell:
Griffon (GFF)
Market Cap: $4.02 billion
Initially in the defense industry, Griffon (NYSE:GFF) is a now diversified company specializing in home improvement, professional equipment, and building products.
Why Is GFF Not Exciting?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.1% annually over the last five years
- Forecasted revenue decline of 14.3% for the upcoming 12 months implies demand will fall even further
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 6.3% annually
Griffon’s stock price of $87.53 implies a valuation ratio of 17.2x forward P/E. If you’re considering GFF for your portfolio, see our FREE research report to learn more.
Ducommun (DCO)
Market Cap: $2.56 billion
California’s oldest company, Ducommun (NYSE:DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.
Why Are We Hesitant About DCO?
- Backlog has dropped by 16% on average over the past two years, suggesting it’s losing orders as competition picks up
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 11.2 percentage points
- ROIC of 2.4% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging
Ducommun is trading at $169.55 per share, or 39.6x forward P/E. Read our free research report to see why you should think twice about including DCO in your portfolio.
One Industrials Stock to Buy:
Dycom (DY)
Market Cap: $11.17 billion
Working alongside some of the most popular mobile carriers in the world, Dycom (NYSE:DY) builds and maintains telecommunications infrastructure.
Why Is DY a Top Pick?
- Annual revenue growth of 21% over the last two years was superb and indicates its market share increased during this cycle
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 31.5% outpaced its revenue gains
- Free cash flow margin expanded by 5.7 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
At $371.77 per share, Dycom trades at 24.1x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.