10 Best Industrials Moat Stocks for February 2026
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Market Overview & Selection Criteria
The industrials sector features companies with strong economic moats, characterized by high ROIC, robust free cash flow margins, and consistent revenue generation, making them attractive for value-oriented analysis. These 10 best industrials moat stocks were selected using ValueSense's proprietary methodology, focusing on Quality ratings above 6.0, elevated intrinsic value estimates relative to market pricing, and key metrics like ROIC > 19%, FCF margins > 17%, and manageable debt-to-equity ratios. This watchlist emphasizes firms with durable competitive advantages in automation, payroll services, rail logistics, and industrial tools, drawn exclusively from ValueSense data for educational stock picks analysis. Selection prioritizes diversified industrials exposure to highlight undervalued opportunities amid cyclical market conditions.
Featured Stock Analysis
Stock #1: Automatic Data Processing, Inc. (ADP)
| Metric | Value |
|---|---|
| Market Cap | $98.8B |
| Quality Rating | 6.7 |
| Intrinsic Value | $117.9 |
| 1Y Return | -18.6% |
| Revenue | $21.2B |
| Free Cash Flow | $4,596.5M |
| Revenue Growth | 6.6% |
| FCF margin | 21.7% |
| Gross margin | 48.4% |
| ROIC | 29.5% |
| Total Debt to Equity | 72.4% |
Investment Thesis
Automatic Data Processing, Inc. (ADP) stands out with a Quality rating of 6.7 and an intrinsic value of $117.9, supported by a massive $98.8B market cap and $21.2B in revenue. The company demonstrates strong financial health through a 29.5% ROIC, 21.7% FCF margin, and 48.4% gross margin, generating $4,596.5M in free cash flow despite a -18.6% 1Y return and 6.6% revenue growth. Its moderate 72.4% total debt to equity underscores stability in payroll and HR services, positioning ADP as a moat-protected leader in business process outsourcing with potential for margin expansion.
This analysis reveals ADP's capacity to convert operational efficiency into shareholder value, with high ROIC signaling effective capital allocation in a recurring revenue model typical of industrials moat stocks.
Key Catalysts
- Exceptional 29.5% ROIC driving superior returns on invested capital
- $4,596.5M free cash flow enabling dividends and buybacks
- 6.6% revenue growth in stable HR outsourcing demand
- 21.7% FCF margin highlighting cash generation prowess
Risk Factors
- -18.6% 1Y return indicating short-term market underperformance
- 72.4% debt-to-equity requiring monitoring amid interest rate shifts
- Dependence on economic cycles for payroll volume
Stock #2: TransDigm Group Incorporated (TDG)
| Metric | Value |
|---|---|
| Market Cap | $82.3B |
| Quality Rating | 6.8 |
| Intrinsic Value | $1,071.9 |
| 1Y Return | 4.6% |
| Revenue | $8,831.0M |
| Free Cash Flow | $1,816.0M |
| Revenue Growth | 11.2% |
| FCF margin | 20.6% |
| Gross margin | 59.3% |
| ROIC | 19.1% |
| Total Debt to Equity | (310.3%) |
Investment Thesis
TransDigm Group Incorporated (TDG) earns a 6.8 Quality rating with a striking $1,071.9 intrinsic value and $82.3B market cap. Key metrics include $8,831.0M revenue, $1,816.0M free cash flow, 11.2% revenue growth, 20.6% FCF margin, 59.3% gross margin, and 19.1% ROIC, though offset by a high 310.3% total debt to equity and modest 4.6% 1Y return. TDG's aftermarket aerospace parts dominance creates a wide moat, with pricing power fueling growth in a capital-intensive sector.
The data points to TDG's resilience, where high margins and revenue acceleration suggest undervaluation for long-term industrials exposure.
Key Catalysts
- 11.2% revenue growth in aerospace demand recovery
- 59.3% gross margin reflecting strong pricing discipline
- 20.6% FCF margin supporting debt management
- 19.1% ROIC in niche aftermarket leadership
Risk Factors
- 310.3% total debt to equity posing leverage risks
- Sensitivity to aviation cycle downturns
- Modest 4.6% 1Y return amid volatility
Stock #3: Illinois Tool Works Inc. (ITW)
| Metric | Value |
|---|---|
| Market Cap | $75.5B |
| Quality Rating | 6.4 |
| Intrinsic Value | $228.8 |
| 1Y Return | 0.4% |
| Revenue | $15.9B |
| Free Cash Flow | $2,845.0M |
| Revenue Growth | (0.4%) |
| FCF margin | 17.9% |
| Gross margin | 43.8% |
| ROIC | 26.8% |
| Total Debt to Equity | 278.7% |
Investment Thesis
Illinois Tool Works Inc. (ITW) holds a 6.4 Quality rating, $75.5B market cap, and $228.8 intrinsic value. Financials show $15.9B revenue, $2,845.0M free cash flow, 0.4% revenue growth, 17.9% FCF margin, 43.8% gross margin, 26.8% ROIC, and 278.7% total debt to equity, with a flat 0.4% 1Y return. ITW's diversified industrial segments provide moat stability through innovation and acquisitions.
High ROIC amid stagnant growth highlights operational excellence, making ITW a core holding for value stock watchlists.
Key Catalysts
- 26.8% ROIC from efficient diversification
- $2,845.0M free cash flow for reinvestment
- 17.9% FCF margin in mature operations
- Broad industrial exposure buffering cycles
Risk Factors
- 0.4% revenue growth signaling stagnation
- 278.7% debt-to-equity leverage concerns
- 0.4% 1Y return reflecting limited upside momentum
Stock #4: Canadian Pacific Railway Limited (CP)
| Metric | Value |
|---|---|
| Market Cap | $66.4B |
| Quality Rating | 7.2 |
| Intrinsic Value | $50.4 |
| 1Y Return | -6.9% |
| Revenue | $15.1B |
| Free Cash Flow | $3,831.0M |
| Revenue Growth | 3.7% |
| FCF margin | 25.4% |
| Gross margin | 58.9% |
| ROIC | 19.1% |
| Total Debt to Equity | 49.5% |
Investment Thesis
Canadian Pacific Railway Limited (CP) boasts a top-tier 7.2 Quality rating, $66.4B market cap, and $50.4 intrinsic value. Metrics include $15.1B revenue, $3,831.0M free cash flow, 3.7% revenue growth, 25.4% FCF margin, 58.9% gross margin, 19.1% ROIC, and conservative 49.5% total debt to equity, despite -6.9% 1Y return. CP's rail network moat ensures network effects in freight transport.
Robust cash flows position CP for infrastructure investments, appealing for undervalued industrials stocks.
Key Catalysts
- 25.4% FCF margin from operational leverage
- $3,831.0M free cash flow scalability
- 58.9% gross margin in essential logistics
- 3.7% revenue growth via volume expansion
Risk Factors
- -6.9% 1Y return from sector headwinds
- Regulatory risks in rail operations
- Fuel cost volatility impacting margins
Stock #5: Fastenal Company (FAST)
| Metric | Value |
|---|---|
| Market Cap | $49.4B |
| Quality Rating | 7.3 |
| Intrinsic Value | $21.1 |
| 1Y Return | -41.8% |
| Revenue | $10.2B |
| Free Cash Flow | $1,050.5M |
| Revenue Growth | 34.6% |
| FCF margin | 10.3% |
| Gross margin | 45.0% |
| ROIC | 37.7% |
| Total Debt to Equity | 11.2% |
Investment Thesis
Fastenal Company (FAST) scores a high 7.3 Quality rating with $49.4B market cap and $21.1 intrinsic value. It reports $10.2B revenue, $1,050.5M free cash flow, explosive 34.6% revenue growth, 10.3% FCF margin, 45.0% gross margin, standout 37.7% ROIC, and low 11.2% total debt to equity, countering a steep -41.8% 1Y return. FAST's vending and fastener distribution model builds vending machine-like recurring revenue.
Elite ROIC underscores moat strength in industrial supplies.
Key Catalysts
- 37.7% ROIC leading the watchlist
- 34.6% revenue growth from market share gains
- Low 11.2% debt-to-equity for flexibility
- On-site distribution network expansion
Risk Factors
- -41.8% 1Y return indicating valuation reset
- 10.3% FCF margin below peers
- Industrial slowdown exposure
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Stock #6: Rockwell Automation, Inc. (ROK)
| Metric | Value |
|---|---|
| Market Cap | $47.3B |
| Quality Rating | 7.3 |
| Intrinsic Value | $236.5 |
| 1Y Return | 51.8% |
| Revenue | $7,184.0M |
| Free Cash Flow | $1,358.0M |
| Revenue Growth | (13.1%) |
| FCF margin | 18.9% |
| Gross margin | 49.0% |
| ROIC | 23.0% |
| Total Debt to Equity | 88.2% |
Investment Thesis
Rockwell Automation, Inc. (ROK) achieves 7.3 Quality rating, $47.3B market cap, and $236.5 intrinsic value. Data shows $7,184.0M revenue, $1,358.0M free cash flow, 13.1% revenue growth, 18.9% FCF margin, 49.0% gross margin, 23.0% ROIC, and 88.2% total debt to equity, buoyed by 51.8% 1Y return. ROK's automation software moat drives factory digitization.
Strong performance metrics support growth in industrials tech.
Key Catalysts
- 51.8% 1Y return momentum
- 23.0% ROIC in automation demand
- 18.9% FCF margin resilience
- Industrial IoT tailwinds
Risk Factors
- 13.1% revenue contraction cyclicality
- 88.2% debt-to-equity in rising rates
- Execution risks in tech transitions
Stock #7: Paychex, Inc. (PAYX)
| Metric | Value |
|---|---|
| Market Cap | $36.5B |
| Quality Rating | 6.7 |
| Intrinsic Value | $55.3 |
| 1Y Return | -29.9% |
| Revenue | $6,033.9M |
| Free Cash Flow | $2,057.5M |
| Revenue Growth | 12.4% |
| FCF margin | 34.1% |
| Gross margin | 73.4% |
| ROIC | 19.6% |
| Total Debt to Equity | 2.2% |
Investment Thesis
Paychex, Inc. (PAYX) features 6.7 Quality rating, $36.5B market cap, and $55.3 intrinsic value. Highlights: $6,033.9M revenue, $2,057.5M free cash flow, 12.4% revenue growth, 34.1% FCF margin, 73.4% gross margin, 19.6% ROIC, and minimal 2.2% total debt to equity, despite -29.9% 1Y return. PAYX's SMB payroll focus yields software-like margins.
Exceptional gross margins signal deep moat in services.
Key Catalysts
- 34.1% FCF margin elite efficiency
- 73.4% gross margin scalability
- 12.4% revenue growth in SMBs
- Low 2.2% debt balance sheet strength
Risk Factors
- -29.9% 1Y return pressure
- Competition in payroll tech
- Economic sensitivity for small businesses
Stock #8: Verisk Analytics, Inc. (VRSK)
| Metric | Value |
|---|---|
| Market Cap | $29.9B |
| Quality Rating | 7.4 |
| Intrinsic Value | $216.9 |
| 1Y Return | -24.5% |
| Revenue | $3,029.5M |
| Free Cash Flow | $1,115.8M |
| Revenue Growth | 7.3% |
| FCF margin | 36.8% |
| Gross margin | 69.6% |
| ROIC | 30.7% |
| Total Debt to Equity | 1,295.0% |
Investment Thesis
Verisk Analytics, Inc. (VRSK) leads with 7.4 Quality rating, $29.9B market cap, and $216.9 intrinsic value. Metrics: $3,029.5M revenue, $1,115.8M free cash flow, 7.3% revenue growth, 36.8% FCF margin, 69.6% gross margin, 30.7% ROIC, but elevated 1,295.0% total debt to equity, and -24.5% 1Y return. VRSK's data analytics moat serves insurance and energy.
High ROIC and margins indicate premium positioning.
Key Catalysts
- 30.7% ROIC data monopoly
- 36.8% FCF margin recurring revenue
- 69.6% gross margin pricing power
- Analytics demand growth
Risk Factors
- 1,295.0% debt-to-equity burden
- -24.5% 1Y return volatility
- Client concentration risks
Stock #9: Veralto Corporation (VLTO)
| Metric | Value |
|---|---|
| Market Cap | $24.3B |
| Quality Rating | 6.2 |
| Intrinsic Value | $66.9 |
| 1Y Return | -4.7% |
| Revenue | $5,452.0M |
| Free Cash Flow | $986.0M |
| Revenue Growth | 6.2% |
| FCF margin | 18.1% |
| Gross margin | 60.0% |
| ROIC | 22.9% |
| Total Debt to Equity | 93.9% |
Investment Thesis
Veralto Corporation (VLTO) has 6.2 Quality rating, $24.3B market cap, and $66.9 intrinsic value. Figures: $5,452.0M revenue, $986.0M free cash flow, 6.2% revenue growth, 18.1% FCF margin, 60.0% gross margin, 22.9% ROIC, 93.9% total debt to equity, and -4.7% 1Y return. VLTO's water and product quality solutions offer essential services moat.
Steady growth supports industrials diversification.
Key Catalysts
- 60.0% gross margin in critical tech
- 22.9% ROIC efficiency
- 6.2% revenue organic growth
- Regulatory-driven demand
Risk Factors
- -4.7% 1Y return flatness
- 93.9% debt levels
- Spin-off integration challenges
Stock #10: Snap-on Incorporated (SNA)
| Metric | Value |
|---|---|
| Market Cap | $19.0B |
| Quality Rating | 6.6 |
| Intrinsic Value | $345.5 |
| 1Y Return | 2.7% |
| Revenue | $4,710.0M |
| Free Cash Flow | $1,026.5M |
| Revenue Growth | (5.8%) |
| FCF margin | 21.8% |
| Gross margin | 50.4% |
| ROIC | 22.4% |
| Total Debt to Equity | 21.8% |
Investment Thesis
Snap-on Incorporated (SNA) scores 6.6 Quality rating, $19.0B market cap, and $345.5 intrinsic value. Data: $4,710.0M revenue, $1,026.5M free cash flow, 5.8% revenue growth, 21.8% FCF margin, 50.4% gross margin, 22.4% ROIC, 21.8% total debt to equity, and 2.7% 1Y return. SNA's tools franchise moat targets automotive technicians.
Balanced metrics suggest recovery potential.
Key Catalysts
- 21.8% FCF margin durability
- 50.4% gross margin brand strength
- 22.4% ROIC capital use
- Franchise model expansion
Risk Factors
- 5.8% revenue decline
- Auto repair cycle exposure
- 2.7% 1Y return moderation
Portfolio Diversification Insights
These 10 industrials moat stocks offer balanced sector allocation across payroll/HR (ADP, PAYX), aerospace/tools (TDG, FAST, SNA), manufacturing (ITW, ROK), logistics (CP), analytics (VRSK), and water tech (VLTO), reducing single-industry risk. High average Quality rating 6.8 and ROIC 25.1% complement varying 1Y returns (-7.5% avg.), with low-debt names like FAST 11.2% offsetting leveraged plays like TDG. Pairing high-FCF margin leaders (VRSK 36.8%, PAYX 34.1%) with growth stories (FAST 34.6% revenue) enhances portfolio resilience, aligning with ValueSense's undervalued stock screening for diversified investment opportunities.
Market Timing & Entry Strategies
Consider positions during industrials sector dips, targeting entries when stocks trade below intrinsic value thresholds (e.g., ADP at $117.9, FAST at $21.1). Monitor macroeconomic signals like falling interest rates to ease debt-heavy names (TDG, ITW), or capex cycles boosting ROK/CP. Dollar-cost average into high-ROIC standouts (FAST 37.7%, VRSK 30.7%) over 3-6 months for volatility mitigation. Use ValueSense screeners for real-time ROIC and FCF confirmation before scaling, focusing on revenue growth inflection (FAST 34.6%, PAYX 12.4%).
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FAQ Section
How were these stocks selected?
These 10 best industrials moat stocks were curated via ValueSense criteria emphasizing Quality ratings 6.0+, high ROIC, strong FCF margins, and intrinsic value upside, focusing on moat-protected industrials for educational analysis.
What's the best stock from this list?
Verisk Analytics (VRSK) edges out with the highest 7.4 Quality rating, 30.7% ROIC, and 36.8% FCF margin, though FAST's 37.7% ROIC makes it a close contender for top stock picks based on ValueSense data.
Should I buy all these stocks or diversify?
Diversification across these stocks mitigates risks like sector cycles, pairing low-debt (PAYX 2.2%) with growth (FAST 34.6% revenue); allocate based on portfolio needs rather than uniform exposure.
What are the biggest risks with these picks?
Key concerns include high debt (TDG -310.3%, VRSK 1,295.0%), negative 1Y returns (FAST -41.8%, PAYX -29.9%), and revenue declines (ROK -13.1%), amplified by industrials cyclicality.
When is the best time to invest in these stocks?
Optimal timing aligns with undervaluation vs. intrinsic value, economic recovery signals, or dips in high-ROIC names; use ongoing ValueSense monitoring for entry points in this stock watchlist.