10 Best Undervalued Industrials Stocks for January 2026
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Market Overview & Selection Criteria
The industrials sector presents compelling opportunities for value-focused analysis, with companies showing strong market caps ranging from $46.7B to $168.1B and quality ratings averaging above 5.5. These 10 best undervalued industrials stock picks were selected using ValueSense's proprietary screening methodology, prioritizing high intrinsic value potential relative to current market positioning, positive free cash flow generation where evident, revenue growth trends, and robust ROIC metrics. Stocks were filtered for those demonstrating quality ratings of 4.7 or higher, with emphasis on defense, logistics, transportation, and manufacturing subsectors that exhibit resilience amid economic cycles. This watchlist highlights top stocks to buy now in industrials, focusing on educational analysis of key financials like FCF margins, debt levels, and 1Y returns to aid retail investors in building diversified portfolios.
Featured Stock Analysis
Stock #1: The Boeing Company (BA)
| Metric | Value |
|---|---|
| Market Cap | $168.1B |
| Quality Rating | 4.7 |
| Intrinsic Value | $304.1 |
| 1Y Return | 32.5% |
| Revenue | $80.8B |
| Free Cash Flow | ($4,364.0M) |
| Revenue Growth | 10.2% |
| FCF margin | (5.4%) |
| Gross margin | 1.1% |
| ROIC | (7.9%) |
| Total Debt to Equity | (646.5%) |
Investment Thesis
The Boeing Company (BA) stands out in the industrials sector with a market cap of $168.1B and a ValueSense quality rating of 4.7. Despite challenges reflected in negative free cash flow of $4,364.0M and ROIC of 7.9%, the stock shows promising revenue growth of 10.2% and 1Y return of 32.5%, supported by revenue of $80.8B. The intrinsic value of $304.1 suggests significant undervaluation potential for long-term analysis, particularly as aerospace demand recovers. High total debt to equity at 646.5% warrants scrutiny, but gross margin of 1.1% and FCF margin of 5.4% provide a baseline for monitoring operational improvements in commercial aviation and defense segments.
Key Catalysts
- Strong revenue growth at 10.2% signaling demand recovery in aviation
- 32.5% 1Y return indicating momentum in stock performance
- $168.1B market cap providing scale in defense and commercial sectors
Risk Factors
- Negative FCF of $4,364.0M highlighting cash burn concerns
- Extremely high total debt to equity at 646.5% increasing financial leverage risk
- Low gross margin of 1.1% and negative ROIC of 7.9% pressuring profitability
Stock #2: Lockheed Martin Corporation (LMT)
| Metric | Value |
|---|---|
| Market Cap | $114.0B |
| Quality Rating | 5.5 |
| Intrinsic Value | $868.5 |
| 1Y Return | 3.8% |
| Revenue | $73.3B |
| Free Cash Flow | $4,593.0M |
| Revenue Growth | 2.9% |
| FCF margin | 6.3% |
| Gross margin | 8.2% |
| ROIC | 16.3% |
| Total Debt to Equity | 359.0% |
Investment Thesis
Lockheed Martin Corporation (LMT), with a market cap of $114.0B and quality rating of 5.5, offers a stable profile in defense industrials, boasting revenue of $73.3B, positive free cash flow of $4,593.0M, and impressive ROIC of 16.3%. The intrinsic value of $868.5 points to undervaluation, complemented by FCF margin of 6.3% and gross margin of 8.2%, despite modest revenue growth of 2.9% and 1Y return of 3.8%. Total debt to equity at 359.0% is elevated but supported by consistent cash generation, making LMT a cornerstone for industrials watchlists focused on reliable profitability.
Key Catalysts
- Strong ROIC of 16.3% demonstrating efficient capital use
- Positive FCF of $4,593.0M supporting shareholder returns
- $114.0B market cap with steady defense contract backlog
Risk Factors
- High total debt to equity at 359.0% posing leverage risks
- Modest revenue growth of 2.9% limiting near-term expansion
- Lower 1Y return of 3.8% compared to sector peers
Stock #3: General Dynamics Corporation (GD)
| Metric | Value |
|---|---|
| Market Cap | $91.6B |
| Quality Rating | 6.1 |
| Intrinsic Value | $514.6 |
| 1Y Return | 32.3% |
| Revenue | $51.5B |
| Free Cash Flow | $4,812.0M |
| Revenue Growth | 11.9% |
| FCF margin | 9.3% |
| Gross margin | 4.0% |
| ROIC | 10.3% |
| Total Debt to Equity | 32.8% |
Investment Thesis
General Dynamics Corporation (GD) features a market cap of $91.6B and top-tier quality rating of 6.1, driven by revenue of $51.5B, robust free cash flow of $4,812.0M, and revenue growth of 11.9%. With intrinsic value at $514.6, FCF margin of 9.3%, and ROIC of 10.3%, GD presents strong fundamentals in defense and marine systems, backed by a solid 1Y return of 32.3%. Total debt to equity at a manageable 32.8% enhances its appeal for balanced industrials exposure.
Key Catalysts
- High revenue growth of 11.9% fueling business expansion
- Excellent FCF of $4,812.0M and 9.3% margin
- 32.3% 1Y return reflecting strong performance
Risk Factors
- Relatively low gross margin of 4.0% amid cost pressures
- Moderate ROIC of 10.3% compared to highest peers
- Dependence on government contracts for revenue stability
Stock #4: United Parcel Service, Inc. (UPS)
| Metric | Value |
|---|---|
| Market Cap | $85.6B |
| Quality Rating | 5.5 |
| Intrinsic Value | $162.0 |
| 1Y Return | -17.3% |
| Revenue | $89.5B |
| Free Cash Flow | $4,396.0M |
| Revenue Growth | (1.2%) |
| FCF margin | 4.9% |
| Gross margin | 5.9% |
| ROIC | 12.5% |
| Total Debt to Equity | 161.1% |
Investment Thesis
United Parcel Service, Inc. (UPS) holds a market cap of $85.6B and quality rating of 5.5, with massive revenue of $89.5B and free cash flow of $4,396.0M despite slight revenue growth decline of 1.2% and negative 1Y return of -17.3%. The intrinsic value of $162.0 indicates undervaluation, supported by ROIC of 12.5% and FCF margin of 4.9%, while total debt to equity at 161.1% reflects logistics sector norms.
Key Catalysts
- High revenue base of $89.5B providing scale advantages
- Solid ROIC of 12.5% and positive FCF generation
- Intrinsic value upside potential at $162.0
Risk Factors
- Negative 1Y return of -17.3% signaling recent underperformance
- Revenue contraction of 1.2% amid e-commerce shifts
- Elevated total debt to equity at 161.1%
Stock #5: Northrop Grumman Corporation (NOC)
| Metric | Value |
|---|---|
| Market Cap | $82.8B |
| Quality Rating | 5.3 |
| Intrinsic Value | $863.8 |
| 1Y Return | 25.7% |
| Revenue | $40.9B |
| Free Cash Flow | $1,834.0M |
| Revenue Growth | (0.1%) |
| FCF margin | 4.5% |
| Gross margin | 19.4% |
| ROIC | 8.8% |
| Total Debt to Equity | 22.7% |
Investment Thesis
Northrop Grumman Corporation (NOC) boasts a market cap of $82.8B and quality rating of 5.3, featuring revenue of $40.9B, free cash flow of $1,834.0M, and high gross margin of 19.4%. Intrinsic value of $863.8 suggests strong undervaluation, with 1Y return of 25.7% and FCF margin of 4.5%, though revenue growth is flat at 0.1%. Low total debt to equity of 22.7% bolsters its defensive industrials profile.
Key Catalysts
- Exceptional gross margin of 19.4% driving profitability
- 25.7% 1Y return with steady FCF
- Low debt levels at 22.7% total debt to equity
Risk Factors
- Stagnant revenue growth of 0.1%
- Moderate ROIC of 8.8%
- FCF margin of 4.5% below top performers
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Stock #6: Cummins Inc. (CMI)
| Metric | Value |
|---|---|
| Market Cap | $71.8B |
| Quality Rating | 7.0 |
| Intrinsic Value | $622.3 |
| 1Y Return | 50.9% |
| Revenue | $33.6B |
| Free Cash Flow | $2,278.0M |
| Revenue Growth | (1.8%) |
| FCF margin | 6.8% |
| Gross margin | 25.6% |
| ROIC | 14.7% |
| Total Debt to Equity | 55.7% |
Investment Thesis
Cummins Inc. (CMI) leads with a quality rating of 7.0 and market cap of $71.8B, showing revenue of $33.6B, free cash flow of $2,278.0M, and standout 1Y return of 50.9%. Intrinsic value at $622.3 highlights undervaluation, with ROIC of 14.7%, gross margin of 25.6%, and FCF margin of 6.8%, despite slight revenue growth dip of 1.8%.
Key Catalysts
- Top 1Y return of 50.9%
- High ROIC of 14.7% and quality rating of 7.0
- Strong gross margin of 25.6%
Risk Factors
- Revenue decline of 1.8%
- Total debt to equity at 55.7%
- FCF margin of 6.8% moderate for sector
Stock #7: FedEx Corporation (FDX)
| Metric | Value |
|---|---|
| Market Cap | $71.2B |
| Quality Rating | 6.5 |
| Intrinsic Value | $381.1 |
| 1Y Return | 7.5% |
| Revenue | $90.1B |
| Free Cash Flow | $4,348.0M |
| Revenue Growth | 3.1% |
| FCF margin | 4.8% |
| Gross margin | 24.4% |
| ROIC | 7.1% |
| Total Debt to Equity | 134.2% |
Investment Thesis
FedEx Corporation (FDX), at market cap $71.2B and quality rating 6.5, generates revenue of $90.1B and free cash flow of $4,348.0M, with revenue growth of 3.1% and 1Y return of 7.5%. Intrinsic value of $381.1 indicates upside, supported by gross margin 24.4% and FCF margin 4.8%, though ROIC is 7.1% and total debt to equity 134.2%.
Key Catalysts
- Massive revenue of $90.1B in logistics
- Positive revenue growth of 3.1%
- High gross margin of 24.4%
Risk Factors
- ROIC of 7.1% below peers
- Total debt to equity at 134.2%
- FCF margin of 4.8%
Stock #8: CSX Corporation (CSX)
| Metric | Value |
|---|---|
| Market Cap | $67.7B |
| Quality Rating | 6.6 |
| Intrinsic Value | $42.4 |
| 1Y Return | 13.2% |
| Revenue | $15.0B |
| Free Cash Flow | $3,777.0M |
| Revenue Growth | 2.1% |
| FCF margin | 25.2% |
| Gross margin | 36.6% |
| ROIC | 18.8% |
| Total Debt to Equity | 154.0% |
Investment Thesis
CSX Corporation (CSX) offers market cap $67.7B, quality rating 6.6, revenue $15.0B, and exceptional free cash flow $3,777.0M with FCF margin 25.2%. Intrinsic value $42.4, 1Y return 13.2%, gross margin 36.6%, and top ROIC 18.8% make it a rail standout, with revenue growth 2.1% and total debt to equity 154.0%.
Key Catalysts
- Leading FCF margin of 25.2% and ROIC 18.8%
- High gross margin of 36.6%
- Steady 13.2% 1Y return
Risk Factors
- Lower revenue base of $15.0B
- Total debt to equity 154.0%
- Revenue growth limited to 2.1%
Stock #9: L3Harris Technologies, Inc. (LHX)
| Metric | Value |
|---|---|
| Market Cap | $55.9B |
| Quality Rating | 5.8 |
| Intrinsic Value | $337.3 |
| 1Y Return | 47.6% |
| Revenue | $21.7B |
| Free Cash Flow | $1,889.0M |
| Revenue Growth | 2.8% |
| FCF margin | 8.7% |
| Gross margin | 23.1% |
| ROIC | 6.3% |
| Total Debt to Equity | 3.7% |
Investment Thesis
L3Harris Technologies, Inc. (LHX) has market cap $55.9B, quality rating 5.8, revenue $21.7B, free cash flow $1,889.0M, and strong 1Y return 47.6%. Intrinsic value $337.3, FCF margin 8.7%, gross margin 23.1%, with low total debt to equity 3.7%, though ROIC 6.3%.
Key Catalysts
- Impressive 47.6% 1Y return
- FCF margin 8.7% and low debt 3.7%
- Revenue growth 2.8%
Risk Factors
- ROIC of 6.3% moderate
- Smaller revenue scale at $21.7B
- Growth dependencies in defense
Stock #10: Roper Technologies, Inc. (ROP)
| Metric | Value |
|---|---|
| Market Cap | $46.7B |
| Quality Rating | 6.1 |
| Intrinsic Value | $542.7 |
| 1Y Return | -15.3% |
| Revenue | $7,721.0M |
| Free Cash Flow | $2,460.1M |
| Revenue Growth | 14.0% |
| FCF margin | 31.9% |
| Gross margin | 69.0% |
| ROIC | 5.5% |
| Total Debt to Equity | 47.3% |
Investment Thesis
Roper Technologies, Inc. (ROP) features market cap $46.7B, quality rating 6.1, standout revenue growth 14.0%, and free cash flow $2,460.1M with top FCF margin 31.9% and gross margin 69.0%. Intrinsic value $542.7 despite -15.3% 1Y return, with ROIC 5.5% and total debt to equity 47.3%.
Key Catalysts
- Highest revenue growth 14.0%
- Exceptional FCF margin 31.9% and gross margin 69.0%
- Strong intrinsic value at $542.7
Risk Factors
- Negative 1Y return of -15.3%
- ROIC 5.5% lagging peers
- Smaller market cap exposure
Portfolio Diversification Insights
These 10 best industrials stock picks create balanced exposure across defense (BA, LMT, GD, NOC, LHX), logistics/transport (UPS, FDX, CSX), engines/manufacturing (CMI), and tech-enabled industrials (ROP). Sector allocation leans 50% defense for stability (high ROIC averages like LMT's 16.3%), 30% logistics for volume-driven growth (e.g., FDX's $90.1B revenue), and 20% specialized manufacturing. Complementary strengths—CSX's 25.2% FCF margin offsets BA's negatives—reduce correlation risks, with average quality rating ~6.0 and multiple intrinsic value upsides (e.g., LMT $868.5). This mix supports portfolio diversification in undervalued industrials, cross-referencing high-return plays like CMI (50.9% 1Y) with steady cash generators like GD.
Market Timing & Entry Strategies
Consider positioning in these industrials stocks during sector rotations toward value, particularly when defense budgets expand or logistics volumes rebound post-economic slowdowns. Monitor for entry when prices approach intrinsic values (e.g., BA near $304.1), using ValueSense tools for ROIC improvements or FCF positivity. Stagger entries across high-quality names like CMI (rating 7.0) and CSX for risk management, focusing on quarterly revenue beats. Analyze market timing via 1Y returns (e.g., avoid recent laggards like ROP at -15.3% unless growth accelerates).
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FAQ Section
How were these stocks selected?
These 10 best undervalued industrials stock picks were chosen via ValueSense screening for quality ratings above 4.7, strong intrinsic values, and key metrics like ROIC and FCF, focusing on industrials subsectors for diversified value opportunities.
What's the best stock from this list?
CMI stands out with the highest quality rating of 7.0, 50.9% 1Y return, and 14.7% ROIC, though analysis should compare personal risk tolerance across all, like CSX's top 25.2% FCF margin.
Should I buy all these stocks or diversify?
Diversification across defense, logistics, and manufacturing (as outlined in portfolio insights) mitigates risks; allocate based on metrics like low-debt NOC versus growth-oriented ROP rather than buying all.
What are the biggest risks with these picks?
Key concerns include high debt levels (e.g., BA's -646.5% debt/equity), negative FCF (BA), and revenue declines (UPS, CMI), alongside sector cyclicality in industrials.
When is the best time to invest in these stocks?
Optimal timing aligns with intrinsic value proximity, positive revenue growth inflection (e.g., GD's 11.9%), or sector tailwinds like defense spending; use ValueSense charting for entry signals.