Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Their momentum is also rising as lower interest rates have incentivized higher capital spending, and as a result, the industry has posted a six-month gain of 5.6%. This was a good place to be as the S&P 500 tumbled by 2%.

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 is one industrials stock poised to generate sustainable market-beating returns and two best left ignored.

Two Industrials Stocks to Sell:

Sealed Air (SEE)

Market Cap: $6.20 billion

Founded in 1960, Sealed Air Corporation (NYSE: SEE) specializes in the development and production of protective and food packaging solutions, serving a variety of industries.

Why Do We Think SEE Will Underperform?

1. Flat unit sales over the past two years imply it may need to invest in improvements to get back on track
2. Flat earnings per share over the last five years lagged its peers
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Sealed Air’s stock price of $42.11 implies a valuation ratio of 12.2x forward P/E. To fully understand why you should be careful with SEE, check out our full research report (it’s free).

SolarEdge (SEDG)

Market Cap: $2.72 billion

Established in 2006, SolarEdge (NASDAQ: SEDG) creates advanced systems to improve the efficiency of solar panels.

Why Do We Pass on SEDG?

1. Sales tumbled by 4.1% annually over the last five years, showing market trends are working against its favor during this cycle
2. Negative free cash flow raises questions about the return timeline for its investments
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

At $45.11 per share, SolarEdge trades at 748.8x forward P/E. If you’re considering SEDG for your portfolio, see our FREE research report to learn more.

One Industrials Stock to Buy:

Badger Meter (BMI)

Market Cap: $4.54 billion

The developer of the world’s first frost-proof water meter in 1905, Badger Meter (NYSE: BMI) provides water control and measure equipment to various industries.

Why Will BMI Outperform?

1. Annual revenue growth of 16.6% over the past five years was outstanding, reflecting market share gains this cycle
2. Incremental sales over the last two years have been highly profitable as its earnings per share increased by 23.6% annually, topping its revenue gains
3. Strong free cash flow margin of 16.1% enables it to reinvest or return capital consistently, and its recently improved profitability means it has even more resources to invest or distribute

Badger Meter is trading at $155.98 per share, or 30.7x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

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