Whether you see them or not, industrials businesses play a crucial part in our daily activities. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 19.9% gain over the past six months, beating the S&P 500 by 8.3 percentage points.

Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. Taking that into account, here are three industrials stocks best left ignored.

Rocket Lab (RKLB)

Market Cap: $49.04 billion

Becoming the first private company in the Southern Hemisphere to reach space, Rocket Lab (NASDAQ: RKLB) offers rockets designed for launching small satellites.

Why Are We Cautious About RKLB?

1. Suboptimal cost structure is highlighted by its history of operating margin losses
2. Earnings per share have dipped by 33.4% annually over the past three years, which is concerning because stock prices follow EPS over the long term
3. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

Rocket Lab is trading at $89.96 per share, or 58.1x forward price-to-sales. Check out our free in-depth research report to learn more about why RKLB doesn’t pass our bar.

Kennametal (KMT)

Market Cap: $2.55 billion

Involved in manufacturing hard tips of anti-tank projectiles in World War II, Kennametal (NYSE: KMT) is a provider of industrial materials and tools for various sectors.

Why Do We Avoid KMT?

1. Annual sales declines of 2.3% for the past two years show its products and services struggled to connect with the market during this cycle
2. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
3. Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 4.7% annually, worse than its revenue

At $33.45 per share, Kennametal trades at 19.7x forward P/E. Dive into our free research report to see why there are better opportunities than KMT.

Crown Holdings (CCK)

Market Cap: $11.88 billion

Formerly Crown Cork & Seal, Crown Holdings (NYSE: CCK) produces packaging products for consumer marketing companies, including food, beverage, household, and industrial products.

Why Are We Wary of CCK?

1. Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
2. Estimated sales growth of 3.4% for the next 12 months is soft and implies weaker demand
3. Gross margin of 20.5% reflects its high production costs

Crown Holdings’s stock price of $104.15 implies a valuation ratio of 12.9x forward P/E. If you’re considering CCK for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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