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.
8. Hafnia Limited (NYSE:HAFN)
Potential Upside: 20.19%
Forward P/E: 8.24
Number of Hedge Fund Holders: 13
Gregory Lewis, an analyst at BTIG, reaffirmed a Buy rating on the Hafnia Limited (NYSE:HAFN) stock on January 2. He also maintained the firm’s price target of $10 for the shares, implying a further 74.83% upside from current levels. This upside is at the top end of Wall Street analysts’ estimates, according to 9 analysts covering the stock.
On December 22, 2025, the company announced that it had completed its acquisition of about 14.1 million A shares of TORM plc. The stake represents approximately 13.97% of TORM’s issued share capital and follows the satisfaction of all terms in Hafnia’s agreement with Oaktree Capital Management and its affiliates.
The agreement provides the company with a significant minority stake in a major publicly listed industry peer, improving Hafnia’s strategic position in the global tanker market. Additionally, the deal also offers flexibility for future collaboration or corporate actions between the two shipping groups. It also underscores the ongoing consolidation and investment interest in the tanker sector. Hafnia, operating nearly 200 vessels transporting oil, chemicals, and oil products, has filed a Schedule 13D with the SEC outlining its investment intentions.
Hafnia Limited (NYSE:HAFN) operates and owns product tankers in Bermuda. The company operates in the Long Range I, Handy size, Long Range II, Medium Range (MR), and Specialized segments. It transports refined oil products, easy chemicals (clean and dirty), and vegetable oil to international and national oil and chemical companies.
7. KBR, Inc. (NYSE:KBR)
Potential Upside: 20.71%
Forward P/E: 10.89
Number of Hedge Fund Holders: 51
On January 7, KBR, Inc. (NYSE:KBR) announced that it had secured a prime position on the Missile Defense Agency’s (MDA) Scalable Homeland Innovative Enterprise Layered Defense (SHIELD) contract. This Multiple-Award, indefinite delivery, indefinite quantity (IDIQ) agreement carries a significant $151 billion ceiling.
Under this contract, the company will deliver systems engineering and integration services across the sea, space, land, air, and cyberspace domains, enabling faster deployment of advanced military capabilities. The contract also permits other Department of War organizations to leverage the agreement for relevant projects.
Mark Kavanaugh, President of Defense, Intelligence, and Space at KBR, commented :
We are proud to collaborate with the Missile Defense Agency to support its next-generation missile defense mission, its critical role under the Golden Dome for America initiative, and other Department of War organizations.
The company plans to use machine learning, artificial intelligence, open systems architectures, digital engineering, and other advanced technologies to accelerate defense system solutions. The contract aligns with KBR’s ongoing efforts to expand its government contract portfolio, emphasizing advanced technology integration and systems engineering for missile defense programs.
KBR, Inc. (NYSE:KBR) operates as a provider of technology, scientific, and engineering solutions to global commercial customers and governments. The company operates through the Sustainable Technology Solutions and Government Solutions segments.
6. Matson, Inc. (NYSE:MATX)
Potential Upside: 22.02%
Forward P/E: 12.97
Number of Hedge Fund Holders: 26
On January 21, Stephens raised its price target on the Matson, Inc. (NYSE:MATX) stock from $190 to $213. On January 2, it provided its 2026 best stocks list, which included MATX. Stephens’ industry team selected the stock as a top pick for robust growth potential in the year ahead. The firm expects MATX to outperform its industry, broader markets, and the Russell 2000.
Another analyst, Wolfe Research, also issued an update on the stock on January 8. Jacob Lacks from Wolfe Research maintained a Buy rating while raising the firm’s price target for the shares from $142 to $167. The firm noted that the transport sector has faced a prolonged slowdown, with the ISM manufacturing index under 50 for 36 of the past 38 months. Additionally, LTL tonnage has also fallen year-over-year in 22 of the past 23 months. However, the analyst noted in a research note that truckload spot rates have significantly outperformed typical seasonal trends over the last six weeks.
Matson, Inc. (NYSE:MATX) provides logistics and ocean transportation services. The company operates through the Logistics and Ocean Transportation segments. It was incorporated in 1882 and is based in Honolulu, Hawaii.
5. Acuity Inc. (NYSE:AYI)
Potential Upside: 25.12%
Forward P/E: 14.28
Number of Hedge Fund Holders: 47
Christopher Snyder from Morgan Stanley cut Acuity Inc.’s (NYSE:AYI) price target from $425 to $410 on January 12. However, he kept his Buy rating on the stock. The analyst noted that the company delivered fiscal Q1 EPS that surpassed expectations, and forward revisions remained unchanged. However, the shares dropped 13% following the report, mainly due to weaker-than-expected margins in the ABL segment. The decline also raised concerns about potential Q1 pull-forward effects and the company’s longer-term pricing power. Despite these short-term challenges, the analyst highlighted that the 13% pullback presents an attractive entry point for investors.
On January 9, financial services firm Baird also presented a similar sentiment about the stock. Baird analyst Timothy Wojs lowered the firm’s price target for the stock from $408 to $375 while reiterating a Buy rating. The analyst said the firm updated its financial model following modest upside in Acuity’s first-quarter results. Despite the slight positive surprise, Timothy noted that expectations for the quarter were higher, prompting a revision to the price target.
Acuity Inc. (NYSE:AYI) operates as a provider of building management systems, lighting, lighting controls, and an audio, video, and control platform. The company operates through the Acuity Intelligent Spaces (AIS) and the Acuity Brands Lighting (ABL) segments.
4. Worthington Enterprises, Inc. (NYSE: WOR)
Potential Upside: 28.23%
Forward P/E: 13.63
Number of Hedge Fund Holders: 22
On January 19, Seaport Global reiterated its Buy rating on the Worthington Enterprises, Inc. (NYSE:WOR) stock. It also set a target price of $74. Last month, Canaccord Genuity lowered its price target for the shares from $73 to $69 on December 19. Canaccord analyst Brian McNamara adjusted the firm’s price target while maintaining a Buy rating on the stock.
The firm noted that Worthington delivered solid revenue results in its eighth consecutive clean reporting quarter following the separation of its steel business. However, despite the strong revenue results, the company fell short of margin expectations. This margin shortfall was largely attributed to one-time items.
The company reported revenue of $327 million in the second quarter, surpassing the consensus estimates of $310.6 million. Adjusted earnings came in at $0.65 per share as compared to $0.60 per share in the same quarter last year.
CFO Colin Souza commented on the solid Q2 by stating:
We delivered solid financial results in Q2, reporting GAAP earnings of $0.55 per share compared to $0.56 per share in the prior year period, and excluding these items in both periods, adjusted earnings were $0.65 per share, up from $0.60 per share in the prior year quarter. Consolidated net sales for the quarter were $327 million, up over 19% compared to $274 million in the prior year quarter.
Worthington Enterprises, Inc. (NYSE:WOR) is an industrial manufacturing company. The company operates in the Building Products and Consumer Products segments. It was formerly known as Worthington Industries, Inc.
3. Alaska Air Group, Inc. (NYSE:ALK)
Potential Upside: 42.97%
Forward P/E: 8.87
Number of Hedge Fund Holders: 44
Alaska Air Group (NYSE:ALK) stock received a boost on January 20 when UBS analyst Atul Maheswari maintained his Buy rating and $77 price target. Prior to that, on January 9, Susquehanna increased its price target for the stock from $52 to $70 while maintaining a Buy rating on the shares. In a research note to investors, Susquehanna highlighted a constructive fundamental outlook for the airline industry into fiscal year 2026. The firm also noted that select carriers are well-positioned to benefit from the diverse revenue sources and strong brand loyalty.
The company advanced its long-term fleet expansion with Boeing on December 31, 2025. As part of the fleet expansion, Alaska Air ordered 53 additional 737-10 aircraft for delivery from 2032 to 2035, adding 35 additional 737-10 options to its long-term purchase pipeline and exercising options for 52 more 737-10s scheduled for delivery between 2028 and 2032. The airline also exercised options for five 787 aircraft scheduled between 2031 and 2032. These actions together highlight the firm’s long-term capacity and fleet growth strategy, set to shape its network and service offerings well into the next decade.
Alaska Air Group, Inc. (NYSE:ALK) operates airlines. The company operates in the Hawaiian Airlines, Alaska Airlines, and Regional segments. It provides scheduled air transportation services on Boeing jet aircraft for cargo and passengers. Alaska Air Group, Inc. was incorporated in 1932 and is headquartered in Seattle, Washington.
2. The GEO Group, Inc. (NYSE:GEO)
Potential Upside: 65.11%
Forward P/E: 14.69
Number of Hedge Fund Holders: 47
According to a report released on December 23, Noble Financial kept its Buy rating on the stock. Analyst Joe Gomes maintained a price target of $35 for the shares, offering a huge upside of 92% from current levels.
A day before the above rating, the company announced that it had secured a contract with U.S. Immigration and Customs Enforcement (ICE). Under the contract, the company will provide skip tracing services for individuals on the federal government’s non-detained docket for a period of up to two years. The agreement is expected to generate approximately $121 million in revenue, or about 4.8% of the company’s trailing twelve-month revenue of $2.53 billion.
The company’s BI Incorporated subsidiary will deliver the services, using improved location research with identifiable information, physical observation, and commercial data verification. These efforts are aimed at investigating address information and verifying current addresses.
George C. Zoley, Executive Chairman of GEO, said in a press release statement:
The expansion of our services addressing the non-detained docket through this new contract is a testament to the high-quality solutions BI has provided to ICE for more than 21 years.
The GEO Group, Inc. (NYSE:GEO) is a leading diversified government services provider. The company specializes in financing, design, development, and support services for processing centers, secure facilities, and community reentry centers.
1. CBIZ, Inc. (NYSE:CBZ)
Potential Upside: 87.47%
Forward P/E: 11.4
Number of Hedge Fund Holders: 24
Faiza Alwy, an analyst at Deutsche Bank, initiated coverage of CBIZ, Inc. (NYSE:CBZ) with a Hold rating on January 12. She assigned the shares a price target of $60, which is below the median Wall Street analyst price target of $85, according to 3 other analysts covering the stock. Her price target offers a further 33% upside from the current levels.
She highlighted that macroeconomic headwinds and execution-related challenges contributed to significant stock underperformance in 2025. The analyst noted that elevated expectations following the Marcum acquisition also weighed on the shares. However, Faiza Alwy anticipates the operating environment to improve over the course of 2026. She believes the company’s current valuation is appropriate and views the shares as fairly valued at present. Despite her optimistic view, the stock has fallen 16% since her rating.
On December 18, CBZ announced three new senior leaders to power the company’s growth strategy. Investors’ patience is continually being tested, though, as none of these developments has yet succeeded in arresting the stock price decline.
CBIZ, Inc. (NYSE:CBZ) provides insurance, financial, and advisory services across Canada and the United States. The company operates in the National Practices, Financial Services, and Benefits & Insurance Services segments. It was founded in 1987 and is based in Independence, Ohio.
While we acknowledge the potential of CBZ as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than CBZ and that has 100x upside potential, check out our report about the cheapest AI stock.
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