These 3 Industrial Stocks May Outperform the S&P 500 in 2026

You don’t need to be a rocket scientist or a brain surgeon to recognize the stock market’s going through some pretty serious turbulence right now. The conflict in the Middle East is of course a big source of this turbulence, although it would be naïve to pretend overvalued stocks of overestimated artificial intelligence (AI) companies aren’t playing a role in the matter either.

While this shift isn’t a reason to get out of the market altogether, it arguably is a reason to rethink your holdings. This may well be the time to get back to basics by owning stakes in industrial companies that actually make, build, or do stuff of tangible value. Here’s a closer look at three such names that just might outperform a suppressed S&P 500 (SNPINDEX: ^GSPC) this year.

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Based on nothing more than the company’s recent performance, it might be a bit difficult to get excited about owning a piece of Fluor (NYSE: FLR). The engineering and heavy construction outfit’s revenue fell 5% to $15.5 billion last year, taking a similar toll on adjusted net earnings. The stock’s been upended several times since early last year as well.

Now take a step back and look at the bigger picture. This company’s backlog of business currently stands at $25.5 billion, and analysts are projecting top-line growth of 5% this year to accelerate to a growth rate of more than 7% next year, restoring profit growth as a result. This sort of ebb and flow is the norm for this particular sliver of the construction industry, where planning and permitting alone can take years.

Then there’s the broader tailwind blowing in this company’s favor, now and for the foreseeable future. That’s the AI data center-driven need for more electricity and everything that entails.

Goldman Sachs predicts artificial intelligence tech will consume 50% more power in 2027 than it did in 2024, with up to a 165% increase in electricity usage in the cards between then and 2035. This means more natural gas, infrastructure, and power production facilities, all of which Fluor handles. It even means new and bigger nuclear power plants, which are also in Fluor’s wheelhouse.

There won’t necessarily be any waiting for this tailwind to translate into real revenue, though. Again, the analyst community is calling for this year’s rekindled sales growth to accelerate next year. That’s why analysts’ one-year consensus price target for FLR is $54.75, or 27% above the stock’s present price.

You may be more familiar with WM (NYSE: WM), the garbage collection company formerly known as Waste Management.

There’s admittedly nothing particularly sexy about it compared to more riveting industries like quantum computing, biotech, or some energy outfit. What WM lacks in pizzazz, however, it more than makes up for in reliable revenue. As long as humans inhabit the Earth, they’ll be throwing trash away… about 2 billion tons of it every year, according to numbers from the World Bank. Somebody’s got to do something with it.

That said, don’t be fooled into assuming trash collection is a simple, low-margin business with limited marketability and lots of competition. None of those things are true (anymore).

Indeed, as places to establish landfills decrease in number and environmental regulations continue stacking up, this industry’s complexity swells, upping WM’s pricing power. A growing number of recycling mandates are also putting pressure on WM’s 105 recycling facilities, which generate revenue themselves via the sales of these materials. The company’s even developed a medical waste business… a worldwide industry that Precedence Research believes is poised to grow from $14 billion last year to nearly $28 billion in 2035, as regulatory oversight ramps up in step with the need.

This company’s single-digit revenue growth might not be exciting. It’s dependable, though, and WM is actually doing quite a bit with the opportunity at hand. That’s more than can be said of plenty of other companies in the S&P 500 right now.

Finally, add USA Rare Earth (NASDAQ: USAR) to your list of industrial stocks that could beat the S&P 500 in 2026 (although for a slightly different reason than WM and Fluor could).

It’s not a household name — at least not yet — primarily because it’s not yet generating any revenue, let alone any profits. That’s likely to change, though, and soon.

That’s because the construction of the company’s rare earth magnet manufacturing facility in Stillwater, Oklahoma, is almost done, with production expected to begin sometime in the first half of this year. Initial annual output is expected to be 5,000 metric tons, although USA Rare Earth anticipates eventual production of up to 10,000 metric tons of these industrial magnets per year, getting it into a business that Mordor Intelligence expects to be worth more than $74 billion per year by 2031.

The launch of production at this facility could, of course, prove catalytic for USAR stock, particularly given how dependent the United States still is on China for permanent magnets.

The ultimate opportunity here is far bigger than mere magnet manufacturing, though. Magnets are used in everything from computers to electric vehicles to medical devices and more. USA Rare Earth also owns a rare earth element mine in Round Top, Texas, that could ultimately yield in excess of 300,000 metric tons of rare earth metals, according to data from the USGS Earth Mapping Resource Initiative and Texas’ Comptroller of Public Accounts. At today’s prices, that’s easily enough to generate over $100 million worth of annual output for at least 20 years.

Long-term stories like this one can be tough to stick with through the very end. And you may not necessarily want to. There’s plenty of buzz and a clear catalyst on the horizon for 2026, though, so at least the foreseeable future could be fruitful enough for shareholders.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends WM. The Motley Fool has a disclosure policy.

These 3 Industrial Stocks May Outperform the S&P 500 in 2026 was originally published by The Motley Fool