Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 18.8% gain over the past six months, beating the S&P 500 by 8.8 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 three industrials stocks we’re passing on.
Lockheed Martin (LMT)
Market Cap: $145.9 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?
- New orders were hard to come by as its average backlog growth of 7.2% over the past two years underwhelmed
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 2.6% annually
- Waning returns on capital imply its previous profit engines are losing steam
Lockheed Martin’s stock price of $633.00 implies a valuation ratio of 20.9x forward P/E. Dive into our free research report to see why there are better opportunities than LMT.
3D Systems (DDD)
Market Cap: $327.2 million
Founded by the inventor of stereolithography, 3D Systems (NYSE:DDD) engineers, manufactures, and sells 3D printers and other related products to the aerospace, automotive, healthcare, and consumer goods industries.
Why Should You Dump DDD?
- Annual sales declines of 6.7% for the past five years show its products and services struggled to connect with the market during this cycle
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
3D Systems is trading at $2.21 per share, or 0.8x forward price-to-sales. Check out our free in-depth research report to learn more about why DDD doesn’t pass our bar.
Allegion (ALLE)
Market Cap: $14.23 billion
Allegion plc (NYSE:ALLE) is a provider of security products and solutions that keep people and assets safe and secure in various environments.
Why Is ALLE Not Exciting?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Estimated sales growth of 7.3% for the next 12 months is soft and implies weaker demand
- Eroding returns on capital suggest its historical profit centers are aging
At $166.00 per share, Allegion trades at 19.1x forward P/E. To fully understand why you should be careful with ALLE, check out our full research report (it’s free).
Stocks We Like More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in 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 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.