Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. 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 22.6% return over the past six months has topped the S&P 500 by 6.1 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 is one resilient industrials stock at the top of our wish list and two we’re steering clear of.

Two Industrials Stocks to Sell:

Flowserve (FLS)

Market Cap: $7.39 billion

Manufacturing the largest pump ever built for nuclear power generation, Flowserve (NYSE: FLS) manufactures and sells flow control equipment for various industries.

Why Does FLS Fall Short?

1. Average backlog growth of 1.6% over the past two years was mediocre and suggests fewer customers signed long-term contracts
2. Estimated sales growth of 5.8% for the next 12 months implies demand will slow from its two-year trend
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 5% for the last five years

Flowserve is trading at $56.51 per share, or 16.5x forward P/E. If you’re considering FLS for your portfolio, see our FREE research report to learn more.

The Toro Company (TTC)

Market Cap: $7.79 billion

Ceasing all production to support the war effort during World War II, Toro (NYSE: TTC) offers outdoor equipment for residential, commercial, and agricultural use.

Why Should You Dump TTC?

1. Annual sales declines of 2.4% for the past two years show its products and services struggled to connect with the market during this cycle
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.6 percentage points
3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $79.59 per share, The Toro Company trades at 17.6x forward P/E. Read our free research report to see why you should think twice about including TTC in your portfolio.

One Industrials Stock to Watch:

Mueller Water Products (MWA)

Market Cap: $3.96 billion

As one of the oldest companies in the water infrastructure industry, Mueller (NYSE: MWA) is a provider of water infrastructure products and flow control systems for various sectors.

Why Do We Like MWA?

1. Highly efficient business model is illustrated by its impressive 12.5% operating margin, and its operating leverage amplified its profits over the last five years
2. Earnings per share have massively outperformed its peers over the last two years, increasing by 44.6% annually
3. Industry-leading 12.1% return on capital demonstrates management’s skill in finding high-return investments, and its returns are climbing as it finds even more attractive growth opportunities

Mueller Water Products’s stock price of $24.85 implies a valuation ratio of 19.3x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

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