2026 Sector Playbook: 3 Sectors Trading Below Fair Value

• Financial stocks like Capital One, PNC, and Bank of America trade below the sector's 16.5x forward P/E ratio, with expected rate cuts in early 2026 potentially boosting bank earnings
• Industrial names including Boeing, Union Pacific, and Honeywell offer value below the sector's 24x P/E average as infrastructure demand and capital expenditure revival accelerate
• Utilities sector stocks such as Exelon, PG&E, and Algonquin trade at discounts to the 18x sector P/E, positioned to benefit from surging data center power needs

2026 Sector Playbook: Undervalued Opportunities in Financials, Industrials, and Utilities

As 2026 begins, investors are rotating out of overvalued growth stocks, particularly in the AI sector, seeking value in underperforming sectors. Three sectors trading below fair value present opportunities: financials, industrials, and utilities.

Financials Sector:

• Financial Select Sector SPDR Fund (XLF) gained 13% in 2025, lagging the S&P 500
• Sector forward P/E ratio: 16.5x
• Lower interest rates expected in H1 2026 could boost bank earnings
• Top holdings like JPMorgan Chase and Berkshire Hathaway trade at/above sector valuations
• Undervalued picks: Bank of America, Capital One Financial, PNC Financial Services Group

Industrials Sector:

• Industrial Select Sector SPDR Fund (XLI) up 18% in 2025, matching S&P 500
• Sector average P/E: 24x (above S&P average)
• Infrastructure demand and capital expenditures expected to drive growth with lower rates
• Value opportunities: Boeing, Union Pacific, Honeywell International (all trading below sector P/E)

Utilities Sector:

• Utilities Select Sector SPDR Fund (XLU) rose 13% in 2025, despite 5.5% pullback in December
• Sector average P/E: 18x
• Growth drivers: data center energy demand and aging infrastructure updates
• Undervalued stocks: Exelon, Pacific Gas & Electric, Algonquin Power & Utilities

Key Catalysts to Watch:

• Interest rate expectations and potential cuts
• Capital expenditure trends
• Data center power demand growth

The analysis suggests stock selection within these sectors may outperform sector ETFs, as individual names trading below sector averages offer better value propositions for 2026.