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 13% has fallen short of the S&P 500’s 16.8% 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 we’re swiping left on.

One Industrials Stock to Sell:

Packaging Corporation of America (PKG)

Market Cap: $18.76 billion

Founded in 1959, Packaging Corporation of America (NYSE: PKG) produces containerboard and corrugated packaging products as well as displays and package protection.

Why Should You Dump PKG?

1. Underwhelming unit sales show it’s struggled to move its products and might have to lower prices to stimulate growth
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Free cash flow margin shrank by 3.2 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Packaging Corporation of America’s stock price of $210.35 implies a valuation ratio of 18.5x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than PKG.

Two Industrials Stocks to Watch:

Badger Meter (BMI)

Market Cap: $6.51 billion

The developer of the world’s first frost-proof water meter in 1905, Badger Meter (NYSE:BMI) provides water control and measure equipment to various industries.

Why Are We Bullish on BMI?

1. Market share has increased this cycle as its 20.9% annual revenue growth over the last two years was exceptional
2. Earnings per share grew by 36.7% annually over the last two years and trumped its peers
3. BMI is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders

Badger Meter is trading at $221.51 per share, or 45.1x forward price-to-earnings. Is now the right time to buy? See for yourself in our full research report, it’s free.

Montrose (MEG)

Market Cap: $701.8 million

Founded to protect a tree-lined two-lane road, Montrose (NYSE:MEG) provides air quality monitoring, environmental laboratory testing, compliance, and environmental consulting services.

Why Do We Like MEG?

1. Impressive 25.4% annual revenue growth over the last five years indicates it’s winning market share this cycle
2. Forecasted revenue growth of 11.5% for the next 12 months implies its momentum over the last two years is sustainable
3. Earnings growth has topped its peers over the last two years as its EPS has compounded at 60.9% annually

At $20.46 per share, Montrose trades at 21.3x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.

Stocks We Like Even More

The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.

Get started by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.