Al Root

Industrials have been one of the best-performing sectors in the S&P 500 so far this year, powered by artificial intelligence and aerospace. Barron's found six industrials with different businesses that are poised to take off now.

Through Tuesday trading, industrial stocks in the S&P 500 returned about 16% year to date. That's just ahead of utility stocks and about one percentage point behind information technology stocks.

AI computing, and its power-hungry data centers, have sent shares of not only Nvidia soaring, but shares of electrical infrastructure providers up, too. Through Tuesday trading, power technology provider GE Vernova stock has roughly doubled in 2025. On the aviation front, meanwhile, shares of sister company GE Aerospace have gained about 68%, boosted by backlogs for Boeing and Airbus that stretch out more than a decade.

Investors might want to look for some other names for outperformance in the coming months. Six Barron's finds are elevator maker Otis, railroad CSX, truck maker Paccar, engineering firm Jacobs Solutions, logistics company Old Dominion Freight Line, and industrial distributor Fastenal.

Wall Street is warming up to that group. All six have been upgraded at least once over the past month, some more than once.

Otis was upgraded by J.P. Morgan and Wolfe Research to Hold from Sell. That isn't a ringing endorsement, but it signals the worst might be past for the company. Through Tuesday trading, the stock was down about 5% year to date and trades for about 19.7 times estimated 2026 earnings, a discount to the S&P 500's 21.4 times multiple and Otis stock's historic forward multiple, which is closer to 22 times.

Deutsche Bank upgraded CSX stock to Buy from Hold, and TD Cowen upgraded it to Hold from Sell after Union Pacific and Norfolk Southern announced plans to merge. CSX will be a consolidation candidate if that merger is allowed to proceed.

Jacobs was upgraded to Buy from Hold by KeyBanc analyst Sangita Jain. Jacobs spun off its government services business in late 2024 and is more attractive after the restructuring, wrote the analyst.

Fastenal sells hundreds of products to thousands of manufacturing customers across the United States. While AI and aerospace boom, the overall industrial sector has been sluggish. The Institute for Supply Management's Purchasing Managers' Index, or PMI, which is a key gauge of industrial activity, came in at 48 for July, down from 49 in June.

A reading above 50 indicates growth. The July reading was the fifth consecutive reading below that level, and the 31st reading below 50 out of the past 33 months after all revisions.

Still, Baird analyst Dave Manthey upgraded Fastenal shares to Buy from Hold recently, noting that it's best to buy distribution stocks when the purchasing index is below 50 and starts to improve. His target is $55 a share, up almost 15% from recent levels.

A weak PMI has weighed on shares of many logistics providers. There is less stuff to haul, pressuring pricing and profit margins. Through Tuesday trading, Old Dominion stock was down about 15% year to date. Shares dropped 10% after relatively weak second-quarter results, but that dip was an opportunity for Vertical Research Partners analyst Jeffrey Kauffman, who upgraded shares to Buy from Hold after the earnings report.

Paccar sells trucks to the likes of Old Dominion. Sales in 2025 are expected to be about $27 billion, down from almost $32 billion in 2024. But sales are expected to rise to $29 billion in 2026. Kauffman also upgraded Paccar stock to Buy from Hold recently. So did Argus analyst William Selesky. With the stock down about 5% year to date through Tuesday trading, both feel like the bottom of the sales cycle is an opportunity to buy stock.

The six stocks haven't all performed well and aren't the most popular shares among Wall Street analysts, but there could be a couple of hidden gems in the group for investors willing to do some work. Don't forget, a stock screen is only a starting point. After identifying potential new ideas -- using factors such as growth, value, or controversy -- the harder work of business analysis and valuation begins.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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August 13, 2025 02:00 ET (06:00 GMT)

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