Whether you see them or not, industrials businesses play a crucial part in our daily activities. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the industry has underperformed the market over the past six months as its 5.9% return lagged the S&P 500 by 3.5 percentage points.

Some companies can grow regardless of the economic backdrop, but the odds aren’t great for the ones we’re analyzing today. Taking that into account, here are three industrials stocks we’re steering clear of.

ArcBest (ARCB)

Market Cap: $2.18 billion

Historically owning furniture, banking, and other subsidiaries, ArcBest (NASDAQ:ARCB) offers full-truckload, less-than-truckload, and intermodal deliveries of freight.

Why Do We Avoid ARCB?

1. Flat unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
2. Earnings per share have dipped by 32.1% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. Waning returns on capital imply its previous profit engines are losing steam

ArcBest’s stock price of $95.49 implies a valuation ratio of 12.5x forward price-to-earnings. To fully understand why you should be careful with ARCB, check out our full research report (it’s free).

Masco (MAS)

Market Cap: $16.26 billion

Headquartered just outside of Detroit, MI, Masco (NYSE:MAS) designs and manufactures home-building products such as glass shower doors, decorative lighting, bathtubs, and faucets.

Why Is MAS Risky?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Projected sales decline of 1.2% over the next 12 months indicates demand will continue deteriorating
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Masco is trading at $78.86 per share, or 17.8x forward price-to-earnings. Read our free research report to see why you should think twice about including MAS in your portfolio, it’s free.

Lockheed Martin (LMT)

Market Cap: $104 billion

Headquartered in Maryland, Famous for the F-35 aircraft, Lockheed Martin (NYSE:LMT) specializes in defense, space, homeland security, and information technology products.

Why Do We Think LMT Will Underperform?

1. Sizable revenue base leads to growth challenges as its 3.5% annual revenue increases over the last five years fell short of other industrials companies
2. Performance over the past five years shows its incremental sales were less profitable as its earnings per share were flat
3. Waning returns on capital imply its previous profit engines are losing steam

At $429.75 per share, Lockheed Martin trades at 15.1x forward price-to-earnings. If you’re considering LMT for your portfolio, see our FREE research report to learn more.

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