As a new bull market emerges, plenty of industrial stocks are flying high. Yet while this may suggest the best move now is to buy industrial stocks, it may be better to sell industrial stocks instead.
Why? Among higher-quality stocks in the industrials sector, the market may have overestimated how quickly economic challenges like inflation and interest rates will normalize. Investors may be in for a surprise if a much-anticipated “soft landing” fails to arrive.
However, it’s not among blue-chip industrials that you should be most concerned about, although it may be wise to take profit with some of your strongest performers among these names. Rather, it is the industrial stocks that could be hammered by both changes in market sentiment plus company-specific issues that are best to jettison from your portfolio pronto.
For instance, with the seven industrial stocks listed below, company-specific issues place each of them firmly in the “sell industrial stocks” category.
FuelCell Energy (FCEL)
Industrial stocks overall may be trending higher, but the same can’t be said about FuelCell Energy (NASDAQ:FCEL). This year, while major market indices are up by double-digits, shares in this hydrogen fuel cell play have declined by around 20%.
If that’s not bad enough, worsening fundamentals point to even lower prices for FCEL stock. There’s little indication that FuelCell is on the verge of reversing issues such as widening losses and a shrinking backlog anytime soon. The same goes for the company’s use of dilutive financing to sustain operations.
As a Seeking Alpha commentator recently pointed out, after increasing the number of outstanding FCEL shares by 30-fold over the past four years, FuelCell is looking to double its authorized share count, suggesting more shareholder dilution ahead. Taking into account all of these negatives, it is clear why FCEL is one of the top industrial stocks to dump.
Hawaiian Holdings (HA)
If you heed my advice to sell industrial stocks, Hawaiian Holdings (NASDAQ:HA) is a name to include on your list. Major legacy and low-cost airlines have thrived during the post-pandemic “revenge travel” era, but not this nearly century-old carrier.
In fact, at a time when airlines have reported record profits, Hawaiian Holdings has instead kept reporting net losses. The company was in the red during 2021 and 2022, a trend that has continued in recent quarters. Sure, the market is bullish that a return to profitability is just around the corner, thanks to factors such as strong demand from Japanese travelers.
However, one can argue that a recovery is already baked into the valuation of HA stock. At today’s prices, shares trade for around 7.7 times estimated 2025 earnings. Compare that to already-profitable carriers, which trade at lower multiples of their current results.
Joby Aviation (JOBY)
Joby Aviation (NYSE:JOBY) shares have spiked higher in 2023, rising by more than 150% year-to-date. A big reason for this aviation technology company’s latest run-up in price has to do with the progress made in moving toward the production stage with its electric vertical takeoff and landing (eVTOL) aircraft products.
However, as InvestorPlace’s Dana Blankenhorn wrote last month, analysts at JPMorgan believe that this latest rally with JOBY stock was “overblown.” Shares have pulled back since JPMorgan made this call. An increasing number of investors are realizing that they perhaps went overboard, adding billions to the valuation of this pre-revenue company.
If you currently own JOBY, it may prove wise to follow this loud sell alert for industrial stocks and make your exit. Irrespective of the market’s next direction, excitement about Joby appears to be cooling off, suggesting the stock may be in for a serious reversal.
Kaman Corporation (KAMN)
Back in June, I laid out the bear case for Kaman Corporation (NYSE:KAMN). In my view, while shares sported an attractive dividend yield (around 3.5%) and this aerospace manufacturer was in the midst of a turnaround, KAMN appeared vulnerable to future price declines.
Flash forward to now. KAMN stock continues to trade in the low-$20s per share, and my bearish view of the stock remains. As before, the main issue with Kaman is one regarding valuation. Even as the stock has fallen in price over the past twelve months, a successful turnaround still appears to be highly priced-in.
Shares trade for 50 times forward earnings and 28.6 times estimated 2024 earnings. Unless Kaman manages to beat 2024 earnings forecasts by a wide margin, I remain doubtful the stock can sustain its current valuation. This places KAMN firmly in the “sell industrial stocks” category.
3M (NYSE:MMM) has long been one of the top industrial stocks to sell. Those who got early saved themselves from massive losses. Over the past five years, shares in this industrial conglomerate have fallen by around 46.6%.
Still, with its low valuation (12.5 times forward earnings) and high dividend yield (5.43%), some bottom-fishers may be tempted to buy MMM stock. However, there’s a good reason why 3M is so cheap. That would be the massive legal liabilities that continue to loom over the company.
As Morningstar analyst Joshua Aguilar pointed out last month, 3M’s remaining PFAS and military earplug-related legal liabilities are still a $24 billion drag on the company. That’s not all. There are other issues at hand with 3M. For instance, growth challenges and the growing risk of a dividend cut. All of this stands to keep MMM a poor performer among industrial stocks.
U-Haul Holding (UHAL)
U-Haul Holding (NYSE:UHAL) is yet another name to add to your sell industrial stocks list. Even as shares in the moving and storage giant have performed well over the past twelve months, it may be a different story with UHAL’s stock price performance in the twelve months ahead.
As seen in U-Haul’s recent results, the economic slowdown is starting to have an impact on its operating performance. Last fiscal year (ending March 31, 2023), the company’s earnings experienced a nearly 18% decline. Management remains optimistic, but a continued economic downturn may mean further underwhelming results ahead in the coming quarters.
UHAL stock may trade at a low valuation (13.5 times earnings), yet if earnings continue to decline, shares could still cough back much of their recent gains. Instead of letting it ride, if you own UHAL, now may be the right time to sell and take profit.
United Parcel Service (UPS)
United Parcel Service (NYSE:UPS) has been in the headlines lately, but not for the best of reasons. The parcel delivery giant has been in the midst of negotiations with the Teamsters labor union, which represents 340,000 of the company’s employees.
UPS has managed to avoid a Teamsters strike, but as analysts at Credit Suisse have argued, achieving labor peace could have an impact on earnings. Agreeing to a total of $30 billion in wage increases and other changes, it may prove difficult for the company to raise prices to cover these increased costs.
Add in the fact that UPS stock (at 17.4 times forward earnings) trades at a slight premium to rival FedEx (NYSE:FDX), which trades for 15.2 times forward earnings, and there seems to be a lot more that could knock UPS lower rather than send it to higher prices in the months ahead.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.