2 Industrials Stocks with Competitive Advantages and 1 That Underwhelm
Whether you see them or not, industrials businesses play a crucial part in our daily activities. Unfortunately, this role also comes with a demand profile tethered to the ebbs and flows of the broader economy, and the industry is currently lagging as its six-month return of 6.9% has trailed the S&P 500’s 21.1% gain.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Taking that into account, here are two industrials stocks we think can generate sustainable market-beating returns and one we’re steering clear of.
One Industrials Stock to Sell:
CSX (CSX)
Market Cap: $86.93 billion
Established as part of the Chessie System and Seaboard Coast Line Industries merger, CSX (NASDAQ:CSX) is a transportation company specializing in freight rail services.
Why Do We Think CSX Will Underperform?
- Disappointing unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Flat earnings per share over the last two years underperformed the sector average
- Free cash flow margin dropped by 6.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
CSX’s stock price of $47.10 implies a valuation ratio of 21.8x forward P/E. To fully understand why you should be careful with CSX, check out our full research report (it’s free).
Two Industrials Stocks to Watch:
AZZ (AZZ)
Market Cap: $4.07 billion
Responsible for projects like nuclear facilities, AZZ (NYSE:AZZ) is a provider of metal coating and power infrastructure solutions.
Why Are We Positive on AZZ?
- Annual revenue growth of 17.3% over the last five years was superb and indicates its market share increased during this cycle
- Healthy operating margin of 15.5% shows it’s a well-run company with efficient processes, and its operating leverage amplified its profits over the last five years
- Earnings growth has massively outpaced its peers over the last five years as its EPS has compounded at 17.5% annually
At $135.26 per share, AZZ trades at 18.7x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Keysight (KEYS)
Market Cap: $61.4 billion
Spun off from Hewlett-Packard in 2014, Keysight (NYSE:KEYS) offers electronic measurement products for use in various sectors.
Why Should You Buy KEYS?
- Impressive 14.7% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Share repurchases over the last two years enabled its annual earnings per share growth of 23.2% to outpace its revenue gains
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its improved cash conversion implies it’s becoming a less capital-intensive business
Keysight is trading at $360.26 per share, or 26.7x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
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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.