Top 5 Industrial Stocks to Watch in 2025: Undervalued Picks with Strong Market Positioning
The industrial sector plays a vital role in economic growth, spanning industries such as manufacturing, defense, and logistics. While industrial stocks generally perform well during economic expansions, they also benefit from increased government infrastructure spending. Despite the Morningstar US Industrials Index rising 19.03% in the past year (compared to 22.60% for the broader market), the sector appears slightly overvalued. However, several industrial stocks remain undervalued and present attractive investment opportunities.
Criteria for Selection
Morningstar analysts identified the best industrial stocks based on:
• Undervaluation: Stocks trading below their fair value estimates.
• Economic Moat: Companies with narrow or wide moats, signifying their ability to maintain a competitive edge for at least 10-20 years.
The 5 Best Industrial Stocks to Buy Now
1. Huntington Ingalls Industries (HII) - Aerospace & Defense
• Price/Fair Value: 0.60 (40% undervalued)
• Forward Dividend Yield: 2.75%
• Economic Moat: Wide
• Key Strengths: Largest independent military shipbuilder in the U.S., benefiting from long-term defense contracts. The company has stable revenue due to high demand for nuclear-powered submarines and large warships.
2. Rentokil Initial (RTO) - Pest Control & Hygiene Services
• Price/Fair Value: 0.61 (39% undervalued)
• Forward Dividend Yield: 2.37%
• Economic Moat: Wide
• Key Strengths: Largest global provider of pest-control services, with a strong acquisition strategy that reinforces its cost advantages. The recent Terminix acquisition solidified its U.S. market leadership.
3. Global Payments (GPN) - Payment Processing & Software
• Price/Fair Value: 0.65 (35% undervalued)
• Forward Dividend Yield: 0.90%
• Economic Moat: Narrow
• Key Strengths: Strong market position in digital payments, benefiting from increased global electronic transactions. Its 2019 merger with Total System Services enhanced its competitive edge.
4. Fanuc (FANUY) - Industrial Robotics & Automation
• Price/Fair Value: 0.79 (18% undervalued)
• Forward Dividend Yield: 2.01%
• Economic Moat: Wide
• Key Strengths: Leading manufacturer of CNC systems and industrial robots, benefiting from growing demand for automation in manufacturing, particularly in automotive and electronics industries.
5. United Parcel Service (UPS) - Logistics & Delivery
• Price/Fair Value: 0.81 (19% undervalued)
• Forward Dividend Yield: 5.86%
• Economic Moat: Wide
• Key Strengths: Largest global parcel delivery company, benefiting from strong package density and efficient logistics operations. It maintains a strong market presence despite competition from FedEx and DHL.
Conclusion
While the industrial sector is currently overvalued as a whole, these five stocks stand out due to their strong competitive advantages and discounted valuations. Investors looking for long-term stability and potential upside may find these stocks particularly attractive in 2025.
The industrial sector plays a vital role in economic growth, spanning industries such as manufacturing, defense, and logistics. While industrial stocks generally perform well during economic expansions, they also benefit from increased government infrastructure spending. Despite the Morningstar US Industrials Index rising 19.03% in the past year (compared to 22.60% for the broader market), the sector appears slightly overvalued. However, several industrial stocks remain undervalued and present attractive investment opportunities.
Criteria for Selection
Morningstar analysts identified the best industrial stocks based on:
• Undervaluation: Stocks trading below their fair value estimates.
• Economic Moat: Companies with narrow or wide moats, signifying their ability to maintain a competitive edge for at least 10-20 years.
The 5 Best Industrial Stocks to Buy Now
1. Huntington Ingalls Industries (HII) - Aerospace & Defense
• Price/Fair Value: 0.60 (40% undervalued)
• Forward Dividend Yield: 2.75%
• Economic Moat: Wide
• Key Strengths: Largest independent military shipbuilder in the U.S., benefiting from long-term defense contracts. The company has stable revenue due to high demand for nuclear-powered submarines and large warships.
2. Rentokil Initial (RTO) - Pest Control & Hygiene Services
• Price/Fair Value: 0.61 (39% undervalued)
• Forward Dividend Yield: 2.37%
• Economic Moat: Wide
• Key Strengths: Largest global provider of pest-control services, with a strong acquisition strategy that reinforces its cost advantages. The recent Terminix acquisition solidified its U.S. market leadership.
3. Global Payments (GPN) - Payment Processing & Software
• Price/Fair Value: 0.65 (35% undervalued)
• Forward Dividend Yield: 0.90%
• Economic Moat: Narrow
• Key Strengths: Strong market position in digital payments, benefiting from increased global electronic transactions. Its 2019 merger with Total System Services enhanced its competitive edge.
4. Fanuc (FANUY) - Industrial Robotics & Automation
• Price/Fair Value: 0.79 (18% undervalued)
• Forward Dividend Yield: 2.01%
• Economic Moat: Wide
• Key Strengths: Leading manufacturer of CNC systems and industrial robots, benefiting from growing demand for automation in manufacturing, particularly in automotive and electronics industries.
5. United Parcel Service (UPS) - Logistics & Delivery
• Price/Fair Value: 0.81 (19% undervalued)
• Forward Dividend Yield: 5.86%
• Economic Moat: Wide
• Key Strengths: Largest global parcel delivery company, benefiting from strong package density and efficient logistics operations. It maintains a strong market presence despite competition from FedEx and DHL.
Conclusion
While the industrial sector is currently overvalued as a whole, these five stocks stand out due to their strong competitive advantages and discounted valuations. Investors looking for long-term stability and potential upside may find these stocks particularly attractive in 2025.