Whether you see them or not, industrials businesses play a crucial part in our daily activities. Still, their generally high capital requirements expose them to the ups and downs of economic cycles, and the industry’s six-month return of 2.7% has fallen short of the S&P 500’s 18.4% rise.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here are two industrials stocks we think can generate sustainable market-beating returns and one best left ignored.
One Industrials Stock to Sell:
Trex (TREX)
Market Cap: $4.44 billion
Addressing the demand for aesthetically-pleasing and unique outdoor living spaces, Trex Company (NYSE:TREX) makes wood-alternative decking, railing, and patio furniture.
Why Do We Avoid TREX?
- Sales tumbled by 1.7% annually over the last two years, showing market trends are working against it during this cycle
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.3 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $43.63 per share, Trex trades at 23x forward P/E. Check out our free in-depth research report to learn more about why TREX doesn’t pass our bar.
Two Industrials Stocks to Watch:
Vertiv (VRT)
Market Cap: $95.78 billion
Formerly part of Emerson Electric, Vertiv (NYSE:VRT) manufactures and services infrastructure technology products for data centers and communication networks.
Why Will VRT Outperform?
- Existing business lines can expand without risky acquisitions as its organic revenue growth averaged 24.2% over the past two years
- Free cash flow margin jumped by 32.1 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
Vertiv is trading at $249.21 per share, or 32.3x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Flowserve (FLS)
Market Cap: $9.81 billion
Manufacturing the largest pump ever built for nuclear power generation, Flowserve (NYSE:FLS) manufactures and sells flow control equipment for various industries.
Why Are We Positive on FLS?
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 23.7% exceeded its revenue gains over the last two years
- Free cash flow margin grew by 7.3 percentage points over the last five years, giving the company more chips to play with
Flowserve’s stock price of $77.21 implies a valuation ratio of 17.4x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662% between October 2022 and February 2026. AppLovin before it ran 753% between February 2024 and February 2026. Nvidia before it ran 1,178% between January 2023 and February 2026. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
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-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.