10 Best Undervalued Industrials Stocks for February 2026
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Market Overview & Selection Criteria
The industrials sector presents compelling opportunities for value investors amid steady economic recovery and rising demand for defense, logistics, and manufacturing solutions. Value Sense's proprietary analysis identifies stocks trading significantly below their calculated intrinsic value, prioritizing those with strong Quality ratings (above 5.5), positive free cash flow generation, and attractive margins despite varying revenue growth. These 10 best industrials stock picks were selected using machine learning-driven intrinsic value models, ROIC assessments, and FCF metrics from Value Sense data, focusing on companies with market caps over $30B showing undervaluation potential. This methodology highlights undervalued industrials stocks suitable for long-term watchlists, balancing defense giants with logistics and tech-enabled industrials for diversified exposure.
Featured Stock Analysis
Stock #1: The Boeing Company (BA)
| Metric | Value |
|---|---|
| Market Cap | $177.3B |
| Quality Rating | 5.5 |
| Intrinsic Value | $267.8 |
| 1Y Return | 30.2% |
| Revenue | $89.5B |
| Free Cash Flow | $1,492.0M |
| Revenue Growth | 34.5% |
| FCF margin | 1.7% |
| Gross margin | 4.8% |
| ROIC | (5.2%) |
| Total Debt to Equity | 991.4% |
Investment Thesis
The Boeing Company (BA) stands out in the industrials sector with a Quality rating of 5.5 and an intrinsic value of $267.8, suggesting substantial undervaluation relative to its $177.3B market cap. Despite a negative ROIC of 5.2% and elevated Total Debt to Equity at 991.4%, BA demonstrates robust recovery potential through explosive revenue growth of 34.5% to $89.5B, supported by $1,492.0M in free cash flow and a 1Y Return of 30.2%. Low gross margin of 4.8% and FCF margin of 1.7% reflect operational challenges, but improving cash flows position BA as an educational case for turnaround analysis in aerospace manufacturing, where defense and commercial aviation demand could drive margin expansion.
Key Catalysts
- Exceptional revenue growth of 34.5%, signaling strong order backlogs and production ramp-up.
- Positive 1Y Return of 30.2%, outperforming amid sector recovery.
- Free cash flow generation of $1,492.0M supports deleveraging efforts over time.
Risk Factors
- Extremely high Total Debt to Equity at 991.4%, increasing financial vulnerability.
- Negative ROIC of 5.2%, indicating inefficient capital allocation.
- Thin gross margin of 4.8% and FCF margin of 1.7%, prone to cost overruns.
Stock #2: Lockheed Martin Corporation (LMT)
| Metric | Value |
|---|---|
| Market Cap | $145.2B |
| Quality Rating | 6.1 |
| Intrinsic Value | $842.7 |
| 1Y Return | 39.0% |
| Revenue | $75.1B |
| Free Cash Flow | $6,908.0M |
| Revenue Growth | 5.7% |
| FCF margin | 9.2% |
| Gross margin | 10.2% |
| ROIC | 26.5% |
| Total Debt to Equity | 322.9% |
Investment Thesis
Lockheed Martin Corporation (LMT), with a $145.2B market cap, earns a solid Quality rating of 6.1 and an intrinsic value of $842.7, highlighting deep undervaluation in the defense industrials space. Strong fundamentals include ROIC of 26.5%, revenue of $75.1B with 5.7% growth, and impressive $6,908.0M free cash flow yielding a 9.2% FCF margin. A 1Y Return of 39.0% underscores resilience, though Total Debt to Equity at 322.9% warrants monitoring. Gross margin of 10.2% supports stable profitability, making LMT a benchmark for industrials stock analysis focused on government contracts and technological superiority.
Key Catalysts
- High ROIC of 26.5%, reflecting efficient capital use in defense programs.
- Robust free cash flow of $6,908.0M and 9.2% FCF margin for dividends and buybacks.
- Solid 1Y Return of 39.0%, driven by geopolitical demand.
Risk Factors
- Elevated Total Debt to Equity of 322.9%, sensitive to interest rate shifts.
- Modest revenue growth of 5.7%, dependent on budget approvals.
- Gross margin of 10.2% vulnerable to program delays.
Stock #3: Northrop Grumman Corporation (NOC)
| Metric | Value |
|---|---|
| Market Cap | $97.8B |
| Quality Rating | 5.7 |
| Intrinsic Value | $841.8 |
| 1Y Return | 43.9% |
| Revenue | $42.0B |
| Free Cash Flow | $3,307.0M |
| Revenue Growth | 2.2% |
| FCF margin | 7.9% |
| Gross margin | 19.8% |
| ROIC | 8.4% |
| Total Debt to Equity | 118.4% |
Investment Thesis
Northrop Grumman Corporation (NOC) features a $97.8B market cap, Quality rating of 5.7, and intrinsic value of $841.8, positioning it as a undervalued defense play. Key metrics show $42.0B revenue with 2.2% growth, $3,307.0M free cash flow at 7.9% FCF margin, and ROIC of 8.4%. A standout 1Y Return of 43.9% and gross margin of 19.8% highlight operational strength, despite Total Debt to Equity of 118.4%. This analysis illustrates NOC's role in stock watchlist strategies emphasizing steady cash flows in aerospace and electronics.
Key Catalysts
- Strong 1Y Return of 43.9%, fueled by contract wins.
- Healthy gross margin of 19.8% and 7.9% FCF margin.
- Reliable free cash flow of $3,307.0M for reinvestment.
Risk Factors
- Total Debt to Equity of 118.4%, exposed to funding risks.
- Low revenue growth of 2.2%, reliant on defense spending.
- Moderate ROIC of 8.4%, with potential for improvement.
Stock #4: General Dynamics Corporation (GD)
| Metric | Value |
|---|---|
| Market Cap | $94.5B |
| Quality Rating | 5.9 |
| Intrinsic Value | $489.6 |
| 1Y Return | 36.6% |
| Revenue | $52.6B |
| Free Cash Flow | $3,959.0M |
| Revenue Growth | 10.1% |
| FCF margin | 7.5% |
| Gross margin | 2.8% |
| ROIC | 10.4% |
| Total Debt to Equity | 31.3% |
Investment Thesis
General Dynamics Corporation (GD) boasts a $94.5B market cap, Quality rating of 5.9, and intrinsic value of $489.6, indicating value in diversified industrials. Metrics include $52.6B revenue up 10.1%, $3,959.0M free cash flow with 7.5% FCF margin, and ROIC of 10.4%. 1Y Return of 36.6% reflects strength, aided by low Total Debt to Equity of 31.3%, though gross margin is slim at 2.8%. GD offers balanced investment opportunities across marine systems and IT services.
Key Catalysts
- Solid revenue growth of 10.1% and 1Y Return of 36.6%.
- Strong free cash flow of $3,959.0M at 7.5% FCF margin.
- Low Total Debt to Equity of 31.3% enhances stability.
Risk Factors
- Low gross margin of 2.8%, sensitive to input costs.
- ROIC of 10.4% trails top peers.
- Sector cyclicality in defense and gulfstream jets.
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Stock #5: United Parcel Service, Inc. (UPS)
| Metric | Value |
|---|---|
| Market Cap | $89.9B |
| Quality Rating | 6.2 |
| Intrinsic Value | $149.5 |
| 1Y Return | -6.2% |
| Revenue | $88.7B |
| Free Cash Flow | $4,765.0M |
| Revenue Growth | (2.6%) |
| FCF margin | 5.4% |
| Gross margin | 27.6% |
| ROIC | 11.3% |
| Total Debt to Equity | 198.6% |
Investment Thesis
United Parcel Service, Inc. (UPS) has an $89.9B market cap, top Quality rating of 6.2, and intrinsic value of $149.5 for logistics value. Despite -6.2% 1Y Return and 2.6% revenue growth on $88.7B sales, $4,765.0M free cash flow yields 5.4% FCF margin, with ROIC of 11.3% and gross margin of 27.6%. Total Debt to Equity at 198.6% is a concern, but strong cash flows support e-commerce recovery analysis.
Key Catalysts
- High gross margin of 27.6% and ROIC of 11.3%.
- Substantial free cash flow of $4,765.0M.
- Logistics demand rebound potential.
Risk Factors
- Negative 1Y Return of -6.2% and revenue growth of 2.6%.
- Total Debt to Equity of 198.6%.
- Competition in parcel delivery.
Stock #6: Cummins Inc. (CMI)
| Metric | Value |
|---|---|
| Market Cap | $79.3B |
| Quality Rating | 7.0 |
| Intrinsic Value | $619.0 |
| 1Y Return | 61.7% |
| 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) features $79.3B market cap, highest Quality rating of 7.0, and intrinsic value of $619.0. Despite 1.8% revenue growth on $33.6B, $2,278.0M free cash flow at 6.8% FCF margin, gross margin of 25.6%, and ROIC of 14.7% shine, with 61.7% 1Y Return. Low Total Debt to Equity of 55.7% bolsters engine and power systems appeal.
Key Catalysts
- Exceptional 1Y Return of 61.7%.
- Strong ROIC 14.7% and gross margin 25.6%.
- Free cash flow of $2,278.0M.
Risk Factors
- Slight revenue decline of 1.8%.
- Engine sector cyclicality.
- Transition to electrification.
Stock #7: FedEx Corporation (FDX)
| Metric | Value |
|---|---|
| Market Cap | $77.5B |
| Quality Rating | 6.5 |
| Intrinsic Value | $412.5 |
| 1Y Return | 20.3% |
| 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 $77.5B market cap has Quality rating 6.5 and intrinsic value $412.5. $90.1B revenue grew 3.1%, with $4,348.0M free cash flow (4.8% FCF margin), gross margin 24.4%, ROIC 7.1%, and 20.3% 1Y Return. Total Debt to Equity 134.2% is notable in express logistics.
Key Catalysts
- Revenue growth 3.1% and 1Y Return 20.3%.
- Solid gross margin 24.4%.
- Free cash flow $4,348.0M.
Risk Factors
- Total Debt to Equity 134.2%.
- Lower ROIC 7.1%.
- Fuel and labor cost pressures.
Stock #8: CSX Corporation (CSX)
| Metric | Value |
|---|---|
| Market Cap | $69.7B |
| Quality Rating | 5.9 |
| Intrinsic Value | $41.0 |
| 1Y Return | 15.4% |
| Revenue | $15.0B |
| Free Cash Flow | $3,227.0M |
| Revenue Growth | 2.9% |
| FCF margin | 21.6% |
| Gross margin | 36.0% |
| ROIC | 945.2% |
| Total Debt to Equity | 138.0% |
Investment Thesis
CSX Corporation ($69.7B market cap) scores Quality rating 5.9 with intrinsic value $41.0. $15.0B revenue up 2.9%, exceptional ROIC 945.2%, 21.6% FCF margin on $3,227.0M cash flow, gross margin 36.0%, and 15.4% 1Y Return. Total Debt to Equity 138.0% in rail transport.
Key Catalysts
- Outstanding ROIC 945.2% and FCF margin 21.6%.
- High gross margin 36.0%.
- Steady revenue growth 2.9%.
Risk Factors
- Total Debt to Equity 138.0%.
- Rail volume fluctuations.
- Regulatory hurdles.
Stock #9: Roper Technologies, Inc. (ROP)
| Metric | Value |
|---|---|
| Market Cap | $38.9B |
| Quality Rating | 6.0 |
| Intrinsic Value | $515.6 |
| 1Y Return | -34.9% |
| Revenue | $7,902.5M |
| Free Cash Flow | $1,764.7M |
| Revenue Growth | 12.3% |
| FCF margin | 22.3% |
| Gross margin | 69.2% |
| ROIC | 5.7% |
| Total Debt to Equity | 0.0% |
Investment Thesis
Roper Technologies, Inc. (ROP) $38.9B market cap, Quality rating 6.0, intrinsic value $515.6. 12.3% revenue growth to $7,902.5M, 22.3% FCF margin on $1,764.7M, gross margin 69.2%, but -34.9% 1Y Return and ROIC 5.7%. Zero Total Debt to Equity aids software-industrial focus.
Key Catalysts
- Strong revenue growth 12.3% and FCF margin 22.3%.
- Exceptional gross margin 69.2%.
- Debt-free balance sheet.
Risk Factors
- Negative 1Y Return -34.9%.
- Lower ROIC 5.7%.
- Acquisition integration risks.
Stock #10: Otis Worldwide Corporation (OTIS)
| Metric | Value |
|---|---|
| Market Cap | $33.8B |
| Quality Rating | 5.9 |
| Intrinsic Value | $102.0 |
| 1Y Return | -10.1% |
| Revenue | $14.4B |
| Free Cash Flow | $1,444.0M |
| Revenue Growth | 1.2% |
| FCF margin | 10.0% |
| Gross margin | 30.5% |
| ROIC | 29.9% |
| Total Debt to Equity | (158.5%) |
Investment Thesis
Otis Worldwide Corporation ($33.8B market cap) Quality rating 5.9, intrinsic value $102.0. $14.4B revenue +1.2%, $1,444.0M free cash flow (10.0% FCF margin), gross margin 30.5%, ROIC 29.9%, -10.1% 1Y Return. Negative Total Debt to Equity -158.5% shows equity strength in elevators.
Key Catalysts
- High ROIC 29.9% and FCF margin 10.0%.
- Solid gross margin 30.5%.
- Urbanization-driven service revenue.
Risk Factors
- Negative 1Y Return -10.1%.
- Negative Total Debt to Equity -158.5% signaling unique structure.
- Construction slowdowns.
Portfolio Diversification Insights
These top industrials stock picks create a resilient portfolio with ~50% in defense (BA, LMT, NOC, GD) for stable government-backed revenues, 30% logistics/rail (UPS, FDX, CSX) for e-commerce and freight exposure, and 20% specialized manufacturing (CMI, ROP, OTIS) for growth. High average Quality rating 6.0 and FCF generation across holdings reduce volatility, with low-debt standouts like GD and ROP balancing leveraged names like BA. Sector allocation minimizes concentration risk while targeting undervalued stocks with ROIC above 10% on average, ideal for stock watchlist diversification.
Market Timing & Entry Strategies
Consider entry during industrials sector dips tied to economic data or interest rate peaks, monitoring intrinsic value gaps widening beyond 20%. Dollar-cost average into top Quality rating names like CMI 7.0 for stability, pairing with catalysts like revenue acceleration in BA or LMT. Track FCF trends quarterly; favorable timing aligns with positive ROIC inflection and debt reduction, using Value Sense screeners for real-time investment ideas.
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FAQ Section
How were these stocks selected?
These 10 best industrials stock picks were chosen using Value Sense's intrinsic value models, focusing on Quality ratings above 5.5, positive FCF, and undervaluation in the industrials sector for educational analysis.
What's the best stock from this list?
CMI leads with the highest Quality rating of 7.0, 61.7% 1Y Return, and strong ROIC of 14.7%, though all offer unique value stock merits based on metrics.
Should I buy all these stocks or diversify?
Diversification across defense, logistics, and manufacturing subsectors is key; allocate based on risk tolerance rather than concentrating in any single name for balanced stock watchlist exposure.
What are the biggest risks with these picks?
Common risks include high Total Debt to Equity (e.g., BA at 991.4%), cyclical revenue, and geopolitical factors in defense—analyze individually via Value Sense tools.
When is the best time to invest in these stocks?
Optimal timing involves intrinsic value discounts expanding during market pullbacks, confirmed by improving FCF margins and ROIC trends for long-term investment opportunities.