Even if they go mostly unnoticed, industrial businesses are the backbone of our country. But their prominence also brings high exposure to the ups and downs of economic cycles. Luckily, the tide is turning in their favor as the industry’s 17.5% return over the past six months has topped the S&P 500 by 10.2 percentage points.
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. Taking that into account, here is one industrials stock boasting a durable advantage and two we’re steering clear of.
Two Industrials Stocks to Sell:
Simpson (SSD)
Market Cap: $8.14 billion
Aiming to build safer and stronger buildings, Simpson (NYSE: SSD) designs and manufactures structural connectors, anchors, and other construction products.
Why Are We Cautious About SSD?
- Sales trends were unexciting over the last two years as its 2.7% annual growth was below the typical industrials company
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Simpson’s stock price of $196.43 implies a valuation ratio of 22.4x forward P/E. Check out our free in-depth research report to learn more about why SSD doesn’t pass our bar.
Covenant Logistics (CVLG)
Market Cap: $702.6 million
Started with 25 trucks and 50 trailers, Covenant Logistics (NASDAQ: CVLG) is a provider of expedited long haul freight services, offering a range of logistics solutions.
Why Are We Out on CVLG?
- Muted 2.7% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Free cash flow margin dropped by 7.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $28.07 per share, Covenant Logistics trades at 16.2x forward P/E. To fully understand why you should be careful with CVLG, check out our full research report (it’s free).
One Industrials Stock to Watch:
SmartRent (SMRT)
Market Cap: $302.7 million
Founded by an employee at a real estate rental company, SmartRent (NYSE: SMRT) provides smart home devices and software for multifamily residential properties, single-family rental homes, and student housing communities.
Why Do We Watch SMRT?
- Ability to secure long-term commitments with customers is evident in its 22.9% average ARR growth over the past two years
- Earnings growth has massively outpaced its peers over the last three years as its EPS has compounded at 24.1% annually
- Improving returns on capital suggest its past investments are beginning to deliver value
SmartRent is trading at $1.60 per share, or 72.9x forward EV-to-EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in 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 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
