Even if they go mostly unnoticed, industrial businesses are the backbone of our country. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the industry has underperformed the market over the past six months as its 2.9% return lagged the S&P 500 by 10.2 percentage points.

Investors should tread carefully as timing cyclical companies is a challenging task, and any misstep can have you catching a falling knife. Keeping that in mind, here are three industrials stocks we’re passing on.

Janus (JBI)

Market Cap: $634.4 million

Standing out with its digital keyless entry into self-storage room technology, Janus (NYSE: JBI) is a provider of easily accessible self-storage solutions.

Why Do We Pass on JBI?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 7.2% annually over the last two years
2. Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $4.66 per share, Janus trades at 6.9x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including JBI in your portfolio.

Ryder (R)

Market Cap: $9.39 billion

As one of the first companies to introduce the idea of leasing trucks, Ryder (NYSE: R) provides rental vehicles to businesses and delivers packages directly to homes or businesses.

Why Are We Hesitant About R?

1. The company has faced growth challenges as its 2.4% annual revenue increases over the last two years fell short of other industrials companies
2. Gross margin of 19.7% reflects its high production costs
3. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

Ryder is trading at $244.67 per share, or 15.2x forward P/E. If you’re considering R for your portfolio, see our FREE research report to learn more.

Covenant Logistics (CVLG)

Market Cap: $901.7 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 Do We Steer Clear of CVLG?

1. 4.5% annual revenue growth over the last two years was slower than its industrials peers
2. Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 16.3% annually
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Covenant Logistics’s stock price of $35.52 implies a valuation ratio of 15.8x forward P/E. Check out our free in-depth research report to learn more about why CVLG doesn’t pass our bar.

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