Industrials Stocks for Long-Term Investors: APi and Caterpillar Shine
When it comes to industrials businesses, some companies may be more resilient than others. Two stocks stand out for their potential to deliver earnings growth in any environment. However, one stock is facing headwinds and may require adjustments or M&A activity to drive growth.
JELD-WEN (JELD) has struggled with organic sales performance over the past two years, which could necessitate strategic changes or mergers and acquisitions. The company's returns on capital have also decreased from an already low base, indicating that recent investments are destroying value. Furthermore, JELD-WEN's cash reserves are depleting, potentially leading to a fundraising event that triggers shareholder dilution.
On the other hand, APi (APG) has demonstrated impressive 18.5% annual revenue growth over the last five years, indicating it is winning market share this cycle. Its earnings per share have also grown at an even faster rate of 17.5%, while its free cash flow margin expanded by 7.2 percentage points. APi's stock price currently trades at $38.35 per share and a valuation ratio of 20.6x forward P/E.
Caterpillar (CAT) is another high-quality business that has outperformed the sector average with annual revenue growth of 10.2% over the last five years. Share repurchases have amplified shareholder returns, with its annual earnings per share growth exceeding its revenue gains. Caterpillar's free cash flow margin expanded by 6.6 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends.