Data Center Demand Powers Undervalued Utilities in 2026

Unsubscribe

Get our next stock pick on Monday (for free) (From MarketBeat Alerts)

2026 Sector Playbook: 3 Sectors Trading Below Fair Value

Written by Chris Markoch on January 1, 2026 

Open investment playbook on a desk with hand-drawn arrows, symbolizing sector rotation strategy for 2026 investing.

What You Need to Know

  • Sector rotation into financials, industrials, and utilities could continue in early 2026 if crowded growth trades cool off.
  • Sector ETFs can work, but stock selection may offer better value where forward valuations sit below sector norms.
  • Rate expectations, capex trends, and data center power demand are three practical catalysts to watch across these sectors.

As we kick off 2026, it’s likely the sector rotation that began in December 2025 will continue. Some investors believe that many of the best-performing stocks of 2025, notably artificial intelligence (AI) stocks, are simply overvalued.

This belief extends beyond concerns about an AI bubble and falls into the category of value for the price. Many growth-oriented technology stocks simply feel overvalued and may require a correction before their valuations become attractive again.

As investors rotate out of the tech sector, they’ll look for stocks in sectors that may be trading below fair value. Three of the key sectors to consider are financials, industrials, and utilities.

This has been a stock picker’s market, so there have been some names in these sectors that have performed well. Many investors may choose to keep riding the hot hand into 2026.

But there are other names that are still trading at attractive valuations to their sector and the broader market. By focusing on individual names, investors have the opportunity to outperform some of the leading ETFs in the sector.

Next Monday’s stock idea (Ad)

A couple of years ago, we started playing with the massive amounts of data that MarketBeat takes in everyday trying to figure out if there was a way to identify short term trading wins. By analyzing earnings data, news sentiment, analyst recommendations, insider transactions and dozens of other data points, we think we’ve found an algorithm that finds interesting short-term stock ideas. We call that algorithm the IdeaEngine and its stock ideas are published on MarketBeat All Access every Monday morning. We make one IdeaEngine idea available free every Monday as an SMS alert. We’ll be releasing the next IdeaEngine alert on Monday morning, so make sure you are signed up before then.Get MarketBeat IdeaEngine Alerts (Free)

Financials: Lower Rates Could Unlock Undervalued Bank Stocks in 2026

Finance stocks are expected to do well in 2026, no matter which direction interest rates go. However, with the scale heavily tilting to at least one rate cut in the first half of 2026, this could be an attractive sector. The overarching theme is that lower interest rates will stimulate the economy, which is more supportive of bank earnings.

One option is to buy the Financial Select Sector SPDR Fund (NYSEARCA: XLF). The fund was up approximately 13% in 2025, lagging the S&P 500. The fund provides exposure to some best-in-class stocks like JPMorgan Chase & Co. (NYSE: JPM) and Berkshire Hathaway (NYSE: BRK.B).

However, these stocks are trading at or slightly above the sector’s forward price-to-earnings (P/E) ratio of 16.5. A different option may be to invest in undervalued sector stocks, including Bank of America (NYSE: BAC), Capital One Financial Corp. (NYSE: COF), and PNC Financial Group Inc. (NYSE: PNC).

Industrials: Capex Revival and Infrastructure Demand Point to Upside

Industrial stocks were one of the hottest sectors in the first half of the year. But the sector has leveled off in the back half, and that’s observed in the stock chart for the Industrial Select Sector SPDR Fund (NYSEARCA: XLI).

Industrials are expected to have another strong year in 2026 as infrastructure demand of all types is likely to get a boost if lower rates spur capital expenditures.

The XLI ETF is up about 18%, which closely approximates the performance of the S&P 500. Many of the top holdings in the fund are overvalued compared to the sector P/E average of around 24x, which is above the S&P average.

However, there is still some value to be found with names like Boeing Co. (NYSE: BA), Union Pacific Corp. (NYSE: UNP), and Honeywell Intl. (NASDAQ: HON) that all trade at a forward P/E ratio below the sector average.

Your stock is up 25%. What just happened?! (Ad)

Your account is not currently signed up for MarketBeat’s free Monday morning stock ideas. Our team is going to be releasing an important pick on Monday morning and we want to make sure that you are able to see it.Add your name to the distribution list here

Utilities: A Quiet Value Play Powered by Data Center Energy Needs

The utilities sector is another place to unlock value in 2026. That could lead you to the Utilities Select Sector SPDR Fund (NYSEARCA: XLU). The ETF finished 2025 up around 13%, below the broader market. However, that was largely due to a 5.5% pullback in the last month of the year.

Utilities stocks are expected to benefit from increased demand from data centers, as well as the need to update aging electric infrastructure.

The sector has an average P/E ratio of around 18x. Some names currently trade at a value to that number, including Exelon Corp. (NASDAQ: EXC), Pacific Gas &  Electric (NYSE: PCG), and Algonquin Power & Utilities Corp. (NYSE: AQN).

Read this article online ›

Further Reading

MarketBeat All Access is the premier all-in-one stock research solution that helps you identify the best stocks, monitor your portfolio, and keep track of the market.

Did you enjoy this article?

I liked this article.
I did not like this article.

Thank you for subscribing to TickerReport, where we work around-the-clock 
to bring you the latest market-moving news.

Contact Us  |  Unsubscribe

© 2006-2026 MarketBeat Media, LLC dba TickerReport. 
345 North Reid Place #620, Sioux Falls, South Dakota 57103. USA..

Unknown's avatar

Published by RJ Hamster

I was born on 6 August 1956 in San Francisco, California to Janet and (the late) Richard Hovis. I grew up in Santa Monica, California where I attended elementary, junior high school, and high school (graduating in 1974), in addition to involvement in sports and recreation (Little League +, the Boy’s Club ++). Further, it was in elementary school – St. Augustine’s By-the -Sea Parish School that I found, and made the choice to truly journey with God. I attended Arizona State University from 1974 to 1977 – seeking to become an architect, however, I was not accepted, and, as such, I graduated with a Liberal Arts degree. Upon graduation from Arizona State University, I attended Cal Poly San Luis Obispo and studied City and Regional Planning at the Master’s level. I successfully completed one (1) year in a two (2) year program – I did not complete the Master’s degree in City and Regional Planning – due to personal reasons. I returned to Santa Monica where I started (October 1979) my career as graphic designer with Exxon Company, USA. I spent five years with Exxon Company, USA. While working with Exxon Company, USA I was accepted into architectural school – Sci-Arc in Southern California, however, I did not attend preferring to stay with Exxon.. In 1982 I married Laura Flosi and in April 1983 we had our one and only child – Lauren Alain Hovis – a gift from God. We moved to Phoenix, Arizona in 1984 from Los Angeles, where I went to work as a graphic designer with Kitchell CEM (from 1985 -1987). From 1987 – 1995 I was an independent contractor, and a registered representative in mortgage finance, financial management, graphic design, and drafting. Further, I attended the University of Phoenix and successfully obtained a Master’s in Business Administration (MBA) in 1982. I was also a member of the Scottsdale Jaycees, where I became very involved in community events and projects. In 1994, I accepted a cartography position with the Defense Mapping Agency in Reston, Virginia. As such, I relocated from Phoenix to Reston. In 1998, I was accepted and worked as a Visual Information Officer with the Central Intelligence Agency. In 2002, I worked as a Support Officer until my retirement (due to a need for shoulder surgery) in September 2018. Away from my Federal Government service, I have been involved in various organizations and activities in Northern Virginia. In November of 2011, I married Rebecca Ouellette in Santa Monica, California. I reside in San Tan Valley, AZ with my two hamster - Jess and Timothy, our fish, our lizard - RJ Lizard., and our cats - Pearl and Grey. As to hobbies, I enjoy playing sports, attending sporting events, mentoring individuals from financial management to hamsters, building models, photography, travel, multimedia design, managing partner for RJ Hamster, and jazz – smooth jazz to a samba or a bossa nova. Love and God Bless, Peter – aka RJ Hamster Jo hi

Leave a Comment