Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the market seems confused about where we could go next. This uncertainty has led to a flat return for the industry over the past six months while the S&P 500 was up 4.1%.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. With that said, here is one industrials stock poised to generate sustainable market-beating returns and two we’re passing on.
Two IndustrialsStocks to Sell:
Woodward (WWD)
Market Cap: $15.32 billion
Initially designing controls for water wheels in the early 1900s, Woodward (NASDAQ:WWD) designs, services, and manufactures energy control products and optimization solutions.
Why Are We Hesitant About WWD?
- 2.8% annual revenue growth over the last five years was slower than its industrials peers
- Earnings per share lagged its peers over the last five years as they only grew by 3.1% annually
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 12.9 percentage points
Woodward is trading at $254.01 per share, or 38.9x forward P/E. Check out our free in-depth research report to learn more about why WWD doesn’t pass our bar.
Toll Brothers (TOL)
Market Cap: $11.53 billion
Started by two brothers who started by building and selling just one home in Pennsylvania, today Toll Brothers (NYSE:TOL) is a luxury homebuilder across the United States.
Why Does TOL Fall Short?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 4.6% decline in its backlog
- Estimated sales growth of 1.9% for the next 12 months is soft and implies weaker demand
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 15.8 percentage points
Toll Brothers’s stock price of $117.26 implies a valuation ratio of 8.2x forward P/E. Read our free research report to see why you should think twice about including TOL in your portfolio.
One Industrials Stock to Buy:
Graham Corporation (GHM)
Market Cap: $569.8 million
Founded when its founder patented a unique design for a vacuum system used in the sugar refining process, Graham (NYSE:GHM) provides vacuum and heat transfer equipment for the energy, petrochemical, refining, and chemical sectors.
Why Is GHM a Top Pick?
- Market share has increased this cycle as its 15.6% annual revenue growth over the last two years was exceptional
- Additional sales over the last two years increased its profitability as the 645% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin expanded by 6.5 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
At $51.91 per share, Graham Corporation trades at 43.9x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
Donald Trump’s April 2024 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check 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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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