Industrial stocks have gotten expensive, but here are some with the most attractive growth prospects
These stocks, and others, in the S&P 500 industrial sector have shown strong price momentum, while the companies are expected to increase sales at rapid paces through 2028, at least.
Believe it or not, U.S. stocks have gotten cheaper this year, even as the S&P 500 has continued to trundle higher. While the market has risen, its gains haven't quite kept up with Wall Street's increasingly sunny outlook for corporate earnings growth.
As a result, the forward price-to-earnings ratio for the index - a popular valuation metric - has declined, even though it is sitting on a year-to-date gain of 12.4%.
But there are some sectors that have proven the exception, including red-hot industrial stocks, which have benefited from the massive artificial-intelligence investment wave, as well as signs of a broader manufacturing renaissance in the United States.
Some might even argue that industrials are looking pricey, as the sector's forward P/E has increased, bucking the broader trend. It was recently second highest among the 11 S&P 500 SPX sectors.
But that doesn't mean the industrial sector should be avoided. Its momentum could carry on for years, as U.S. manufacturing activity and data-center construction continue to accelerate.
To help highlight potential opportunities in the space, MarketWatch has screened industrial-sector names for a combination of price momentum and expected revenue growth through 2028, with the results below.
The momentum trade has worked out well for investors so far in 2026, even as the stock market's performance has broadened.
Take a look at this chart showing year-to-date returns (with dividends reinvested) for the State Street SPDR S&P 500 ETF SPY, the Invesco S&P 500 Equal Weight ETF RSP and the Invesco S&P 500 Momentum ETF SPMO:
The S&P 500 has performed well so far in 2026, but the equal-weight index has done even better, showing that performance has been broadening. And the Invesco S&P 500 Momentum ETF has performed better than either one.
Gains have been broadening out, with the S&P 500 equal-weight index XX:SP500EW outperforming the benchmark S&P 500, which is weighted by market capitalization. And the Invesco S&P 500 Momentum ETF has been way ahead of both of those indexes. This exchange-traded fund is reconstituted twice a year (in March and September) to hold the 100 S&P 500 stocks scoring highest for price momentum over the previous 12 months, with a volatility adjustment.
Now let's take a look at how the sectors of the S&P 500 have performed this year, excluding dividends, and how their forward P/E ratios have changed. The P/E ratios are prices divided by rolling consensus 12-month earnings-per-share estimates among analysts polled by FactSet. The P/E ratios are weighted by market capitalization, except for those of the S&P 500 equal-weight index.
Sector Forward P/E Forward P/E at end of 2025 2026 price change 2026 change in rolling 12-month EPS estimate
Consumer Discretionary 24.9 29.6 -1.0% 18%
Industrials 24.8 23.9 18.2% 14%
Consumer staples 23.0 22.1 9.5% 5%
Information technology 22.2 26.6 21.3% 48%
Health care 19.1 18.6 9.4% 8%
Real estate 18.4 17.1 11.5% 4%
Materials 17.7 19.3 12.7% 23%
Communication services 17.5 22.7 -0.9% 29%
Utilities 17.4 17.9 2.7% 6%
Financials 15.3 16.3 5.4% 12%
Energy 14.1 16.0 41.5% 61%
S&P 500 20.0 22.2 12.4% 25%
S&P 500 equal weighted 16.4 16.8 14.6% 17%
Source: FactSet
The full S&P 500's forward P/E has declined to 20 from 22.2 at the end of 2025, underscoring how this bull market has been driven by profit increases. The weighted rolling consensus 12-month EPS estimate for the index has risen at more than twice the pace of the index's price.
The industrial sector has performed better than the S&P 500 so far this year, although it has trailed the energy and technology sectors. The industrial sector's forward P/E has increased to 24.8 from 23.9 at the end of 2025. It is one of four sectors that have bucked the trend. The sector's performance is tracked by the State Street Industrial Select Sector SPDR ETF XLI.
The expanding valuation for industrials may reflect investors' enthusiasm for the "reshoring" trend and what Bob Robotti, founder and chief investment officer of Robotti & Company Advisors, called "the reindustrialization of America" when he spoke with MarketWatch last week about the stocks of three providers of hard assets.
At the same time, the technology sector's forward P/E has declined significantly to 22.2 from 26.6 at the end of last year, as analysts' rolling consensus 12-month earnings-per-share estimates have risen more quickly than share prices for the group.
The consumer discretionary sector remains the most expensive in the S&P 500, although its forward P/E has declined to 24.9 from 29.6 at the end of 2025. But this sector has been this year's worst performer in the S&P 500, with a 1% decline, even as its weighted rolling 12-month EPS estimate has increased 18%. The sector has been weighed down by a 25% price decline for Tesla $(TSLA)$, which makes up nearly 16% of the State Street Industrial Select Sector SPDR ETF XLI.
A momentum screen of industrial stocks
We began with the 83 stocks in the S&P 500's industrial sector and narrowed the group to 44 that have risen at least 10% this year, for the momentum component of the screen. Then we narrowed further to 42 companies for which consensus sales estimates are available through 2028. These are calendar-year estimates, adjusted for companies whose fiscal reporting periods don't match the calendar.
For the entire S&P 500 industrial sector, revenue is expected to increase at a compound annual growth rate of 7.5% from 2026 through 2028.
Here are the nine companies in the sector that passed the screen and have projected sales CAGR of 10% or higher from 2026 through 2028:
Company Two-year estimated sales CAGR through 2028 2026 price change Forward P/E Forward P/E at the end of 2025 Vertiv Holdings 25.7% 68% 33.0 30.6 Comfort Systems USA 19.6% 86% 31.1 30.3 Generac Holdings 17.1% 55% 19.2 16.7 GE Vernova 14.9% 54% 37.1 50.8 Quanta Services 14.6% 65% 37.4 34.0 Howmet Aerospace 12.3% 43% 48.8 46.1 Caterpillar 11.1% 47% 27.6 25.7 Eaton 10.4% 35% 28.6 23.2 GE Aerospace 10.1% 22% 43.3 42.7
Click the tickers for more about each company, ETF or index.
Most of these stocks have forward P/E ratios well above those of the S&P 500 and the industrial sector, which might be expected with higher projected sales growth rates.
But the P/E valuations aren't much higher than they were at the end of 2025, despite this year's price increases. And in the case of GE Vernova (GEV), the P/E valuation has declined significantly.
That in itself could be a sign that industrials have more room to run.
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-Philip van Doorn
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