Since Donald Trump’s takeover of Venezuela’s oil resources, the Industrial sector has returned to the limelight. The debate over Greenland and resulting geopolitical tensions between Europe and the US have added uncertainty, but it is exactly the type of uncertainty that propels stocks higher in Aerospace & Defense, a key sub-segment of the broader industrial sector.
With AI progress continuing to influence how companies work, industrial automation is also driving efficiency in the sector. It must be noted, however, that a new research report from Redwood Software has raised questions about the extent of this automation. This report, titled “Manufacturing AI and automation outlook 2026,” is based on a global survey of 300 manufacturing professionals and says that while 98% manufacturers are considering AI automation, only 20% feel fully prepared to deploy it at scale. This reality of the automation gap suggests that AI adoption in Industrials is likely to be gradual rather than immediate. This is why it is important to bet on undervalued stocks rather than those trading at the AI premium.
Meanwhile, macroeconomic conditions also appear more supportive than previously anticipated. The International Monetary Fund (IMF) released a report on January 21, revising its global growth projections upwards to 3.3% for 2026. While this doesn’t directly affect all US industrial stocks, it does show that global growth concerns are fewer than before, despite tariffs. This increased global activity can benefit US companies with a global presence.
Given the above developments, we decided to look at the 10 most undervalued industrial stocks to buy according to analysts.
Our Methodology
To compile our list of the 10 most undervalued industrial stocks to buy according to analysts, we looked at companies in the industrials sector with a market cap of at least $2 billion. We only considered companies with a forward P/E ratio of below 15. This criterion gives us a 40% discount to the sector’s forward P/E of just over 25.
We then selected the stocks that analysts and hedge funds were the most bullish on. The stocks are ranked in ascending order of their average upside potential, as of January 21.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).
10. Gates Industrial Corporation plc (NYSE:GTES)
Potential Upside: 15.7%
Forward P/E: 14.72
Number of Hedge Fund Holders: 34
On January 15, RBC Capital reiterated its Buy rating on Gates Industrial Corporation plc (NYSE:GTES) and set a price target of $29. On January 9, Citi had also reiterated its Buy rating on the stock. However, Andrew Kaplowitz, the analyst at Citi, cut the firm’s price target for the shares from $28 to $27. This target price adjustment reflects broader changes the firm made to its price targets as part of its fourth-quarter outlook. The firm’s revised price target suggests a further 15.7% upside from current levels.
In addition to Citi, financial services firm UBS also presented a similar stance on the shares on January 5. UBS analyst Damian Karas lowered the firm’s price target for the stock from $29 to $28 while maintaining a Buy rating. The revised price target offers an additional upside of 22.86% from the current levels.
However, unlike Citi and UBS, Barclays reaffirmed its price target and Buy rating for the stock on January 7. Barclays analyst Julian Mitchell maintained the firm’s $26 price target for the shares, implying a further 11.5% upside from current levels.
Gates Industrial Corporation plc (NYSE:GTES) is a manufacturer and seller of engineered power transmission and fluid power solutions worldwide. The company operates through the Fluid Power and Power Transmission segments. It sells its products to replacement channel customers and to original equipment manufacturers.
9. ABM Industries Incorporated (NYSE:ABM)
Potential Upside: 16.74%
Forward P/E: 10.52
Number of Hedge Fund Holders: 24
On January 21, Truist Securities downgraded ABM Industries (NYSE:ABM) stock to Hold from Buy, lowering its target price from $58 to $47. The main reason for the downgrade was a normalizing of trends in the Business & Industry segment, which represents 47% of the company’s revenue. Moreover, stock buybacks, which were expected to be the biggest value creation factor this year, are also unlikely following the WGNSTAR acquisition.
A similar sentiment was observed last month, when UBS lowered its price target for the stock from $55 to $51 on December 18. Joshua Chan, an analyst at UBS, also downgraded the company from Buy to a Hold rating. According to the firm, the stock’s short-term performance may be constrained by the company’s limited flexibility for incremental capital deployment and relatively “flattish” margin trajectory. The firm further highlighted that ABM’s FY2026 guidance, along with its announcement of the WGNSTAR acquisition, limits both margin expansion and capital deployment potential. On the same day, Robert W. Blair reiterated its Hold rating on the stock while cutting the firm’s price target from $54 to $52.
ABM Industries Incorporated (NYSE:ABM) provides facility maintenance, engineering, and infrastructure solutions across the United States and globally. It operates in the Aviation, Manufacturing & Distribution, Business & Industry, Education, and Technical Solutions segments.
