Even if they go mostly unnoticed, industrial businesses are the backbone of our country. They are also bound to benefit from a friendlier regulatory environment with the Trump administration, and this excitement has led to a six-month gain of 12.5% for the sector - higher than the S&P 500’s 5.6% return.
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. Keeping that in mind, here is one industrials stock boasting a durable advantage and two that may face trouble.
Two Industrials Stocks to Sell:
Caterpillar (CAT)
Market Cap: $328.5 billion
With its iconic yellow machinery working on construction sites, Caterpillar (NYSE: CAT) manufactures construction equipment like bulldozers, excavators, and parts and maintenance services.
Why Are We Hesitant About CAT?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Gross margin of 29.2% reflects its high production costs
- Earnings per share have dipped by 5.2% annually over the past two years, which is concerning because stock prices follow EPS over the long term
Caterpillar is trading at $707.17 per share, or 32.1x forward P/E. Check out our free in-depth research report to learn more about why CAT doesn’t pass our bar.
Regal Rexnord (RRX)
Market Cap: $13.23 billion
Headquartered in Milwaukee, Regal Rexnord (NYSE: RRX) provides power transmission and industrial automation products.
Why Does RRX Worry Us?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 2.6% annually
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
Regal Rexnord’s stock price of $198.94 implies a valuation ratio of 19.7x forward P/E. Read our free research report to see why you should think twice about including RRX in your portfolio.
One Industrials Stock to Buy:
Nextpower (NXT)
Market Cap: $15.35 billion
With its technology playing a key role in the massive 1.2 gigawatt Noor Abu Dhabi solar farm project, Nextpower (NASDAQ: NXT) is a provider of solar tracker systems that help solar panels follow the sun.
Why Are We Bullish on NXT?
- Market share has increased this cycle as its 25.7% annual revenue growth over the last two years was exceptional
- Free cash flow margin jumped by 22.5 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Improving returns on capital reflect management’s ability to monetize investments
At $101.53 per share, Nextpower trades at 23.2x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
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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 Kadant (+351% five-year return). Find your next big winner with StockStory today.
