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 16.3% return over the past six months has topped the S&P 500 by 9.9 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 are two industrials stocks we think can generate sustainable market-beating returns and one we’re steering clear of.
One Industrials Stock to Sell:
Moog (MOG.A)
Market Cap: $9.52 billion
Responsible for the flight control actuation system integrated in the B-2 stealth bomber, Moog (NYSE:MOG.A) provides precision motion control solutions used in aerospace and defense applications
Why Do We Think Twice About MOG.A?
- Muted 4.9% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.6 percentage points
- Low returns on capital reflect management’s struggle to allocate funds effectively
Moog is trading at $300.56 per share, or 32x forward P/E. Check out our free in-depth research report to learn more about why MOG.A doesn’t pass our bar.
Two Industrials Stocks to Watch:
Astronics (ATRO)
Market Cap: $2.54 billion
Integrating power outlets into many Boeing aircraft, Astronics (NASDAQ:ATRO) is a provider of technologies and services to the global aerospace, defense, and electronics industries.
Why Will ATRO Outperform?
- Annual revenue growth of 11.8% over the past two years was outstanding, reflecting market share gains this cycle
- Free cash flow margin jumped by 7.6 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Historical investments are beginning to pay off as its returns on capital are growing
At $70.38 per share, Astronics trades at 27.1x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Installed Building Products (IBP)
Market Cap: $7.82 billion
Founded in 1977, Installed Building Products (NYSE:IBP) is a company specializing in the installation of insulation, waterproofing, and other complementary building products for residential and commercial construction.
Why Do We Like IBP?
- Impressive 12.4% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Industry-leading 21.7% return on capital demonstrates management’s skill in finding high-return investments, and its rising returns show it’s making even more lucrative bets
Installed Building Products’s stock price of $288.86 implies a valuation ratio of 25.9x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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