The industrial sector is the top performer in 2025. These dividend payers still have room to run

The industrials sector is emerging as a top performer in 2025, up 17% year-to-date and outperforming tech, driven by a solid U.S. economy, expected manufacturing boosts from trade policy, and a rebounding Bank of America Industrial Momentum Indicator due to easing tariffs. Within this robust environment, CNBC Pro highlights specific S&P 500 opportunities offering both upside and dividends. Noteworthy mentions include C.H. Robinson Worldwide (2.4% yield, 8% upside, analyst upgrades, AI benefits), FedEx (2.4% yield, 9% upside, cost-cutting initiatives, demand surcharges), and Otis Worldwide (1.9% yield, 11% upside, JPMorgan upgrade, stable service business), all presenting attractive valuations and unique tailwinds.

Analysis

The industrials sector is demonstrating significant market leadership in 2025, with a 17% year-to-date gain that surpasses the technology sector's 13% rise. This outperformance is underpinned by a resilient U.S. economy and expectations that trade policies will bolster domestic manufacturing. Supporting this trend, Bank of America's Industrial Momentum Indicator is rebounding from tariff-induced lows, driven by improved fund manager sentiment and easing cost pressures. However, a key risk highlighted by analyst Michael Feniger is whether this positive sentiment will be validated by tangible 'on the ground' economic data in the second half of the year. Within this strong sector, several S&P 500 components have underperformed year-to-date but present potential value and income opportunities. C.H. Robinson (CHRW), down 1%, offers a 2.4% yield and an 8% consensus upside, with Wolfe Research citing an attractive long-term valuation and unique productivity gains from AI. FedEx (FDX), down 14%, provides a 2.4% yield and 9% upside, supported by aggressive cost-cutting initiatives and significant peak season demand surcharges. Otis Worldwide (OTIS), down over 4%, has a 1.9% yield and 11% potential upside, with JPMorgan upgrading the stock based on the stability of its service business, which constitutes nearly 90% of profits and offsets weakness in China's original equipment market.

Key Decisions for Investors

• Investors with a bullish view on the U.S. economy should consider overweighting the industrials sector, but focus on names that have lagged the sector's rally and offer compelling, stock-specific catalysts.
• For income and value-oriented portfolios, C.H. Robinson, FedEx, and Otis Worldwide warrant further diligence, as their recent underperformance, combined with yields between 1.9% and 2.4% and potential double-digit upside, presents a potential catch-up trade.
• Monitor high-frequency economic data and company-specific execution closely, particularly the risk of weak Q2 forwarding results for CHRW and the ongoing impact of China's OEM market on OTIS, to validate the current positive sentiment.
• Consider relative value opportunities, such as the analyst-endorsed preference for FedEx over UPS due to its cost-cutting tailwinds, or Otis's valuation discount relative to sector peers.