Industrial Stocks: Timing is Everything

Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Unfortunately, this role also comes with a demand profile tethered to the ebbs and flows of the broader economy. The market seems to be debating where we are in the cycle as the industrials stocks were flat over the past six months. At the same time, the S&P 500 rose by 3.6%.Investors should tread carefully as timing cyclical companies is a challenging task, and any misstep can have you catching a falling knife.

Three Industrial Stocks to Avoid

nLIGHT (LASR)

Market Cap: $454.5 million
Founded by a former CEO and Harvard-educated entrepreneur Scott Keeneyn, nLIGHT (NASDAQ:LASR) offers semiconductor and fiber lasers to the industrial, aerospace & defense, and medical sectors.

Why Do We Think LASR Will Underperform?

Annual sales declines of 9.4% for the past two years show its products and services struggled to connect with the market during this cycle
Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
nLIGHT is trading at $9.29 per share, or 2.1x forward price-to-sales

We believe that including nLIGHT in your portfolio could lead to disappointing results. Our free research report provides a detailed analysis of why this might be the case, highlighting the company’s struggles with market adoption and its questionable ability to generate shareholder value.

Kratos (KTOS)

Market Cap: $4.17 billion
Established with a commitment to supporting national security, Kratos (NASDAQ:KTOS) is a provider of advanced engineering, technology, and security solutions tailored for critical national security applications.

Why Are We Wary of KTOS?

Cash burn has widened over the last five years, making us question whether it can reliably generate shareholder value
ROIC of 3.8% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
At $27.68 per share, Kratos trades at 47.2x forward price-to-earnings

We are cautious about investing in Kratos due to its significant cash burn and struggling return on investment capital. Our research report delves into the company’s issues with identifying profitable opportunities and sheds light on why there may be better alternatives for investors.

3D Systems (DDD)

Market Cap: $398.7 million
Founded by the inventor of stereolithography, 3D Systems (NYSE:DDD) engineers, manufactures, and sells 3D printers and other related products to the aerospace, automotive, healthcare, and consumer goods industries.

Why Should You Sell DDD?

Customers postponed purchases of its products and services this cycle as its revenue declined by 7.2% annually over the last five years
Free cash flow margin shrank by 9.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

We strongly advise against holding onto DDD due to its revenue decline and free cash flow deterioration. Our thorough research report highlights these risks and explores why investors should be cautious about investing in this stock.

Stocks We Like More

The elections are now behind us, with rates dropping and inflation cooling, many analysts expect a breakout market – and we’re zeroing in on the stocks that could benefit immensely. With a focus on growth and returns, our top 5 picks have generated an impressive 175% over the last five years.

Top 5 Growth Stocks

Our curated list highlights businesses with high potential for growth and returns. These companies not only offer significant upside but also demonstrate proven track records of success. By investing in these stocks, you can capitalize on the expected breakout market and generate substantial returns.

Some notable mentions from our top picks include:

• Nvidia (NVIDIA) – A leader in the semiconductors industry with a 2,183% return between December 2019 and December 2024
• Comfort Systems – An under-the-radar business that generates 751% of its revenue over the last five years

Our list aims to provide you with a mix of established names and emerging players in various sectors. By investing in these stocks, you can benefit from their strong growth potential and returns.

Take advantage of the rebound by checking out ourTop 5 Growth Stocks for this month. Get your free access today!