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Special Report 2026 Sector Playbook: 3 Sectors Trading Below Fair ValueBy Chris Markoch. Published: 1/1/2026. 
Quick Look - 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, the sector rotation that began in December 2025 will likely continue. Many investors believe several of 2025's top performers—especially artificial intelligence (AI) names—are overvalued. This view goes beyond worries about an AI bubble; it reflects broader valuation concerns. Many growth-oriented technology stocks simply feel rich and may need a correction before their valuations become attractive again. Buy This AI Stock Tomorrow Morning?
A former hedge fund manager known for spotting early winners is sounding the alarm once again. He called Netflix at $7.78 (up 4,200% since), Apple at $0.35 (up 20,000%), and Amazon at a split-adjust $2.41 (up 3,200%). Now he's turning his focus to a little-known AI company that just earned a near-perfect score in his new proprietary stock grading system. In a brand-new presentation, he reveals the name, ticker symbol, and why this could be the smartest AI move of the year... especially if you're over 50. Click here to watch it before word gets out. As investors rotate out of tech, they'll look for sectors trading below fair value. Three key areas to consider are financials, industrials and utilities. It's been a stock-picker's market, so some names in these sectors have already performed well and may keep rising into 2026. But other stocks still trade at attractive valuations relative to their sector and the broader market. By focusing on individual names, investors may be able to outperform some of the leading sector ETFs. Financials: Lower Rates Could Unlock Undervalued Bank Stocks in 2026 Finance stocks are positioned to do well in 2026 regardless of the direction of interest rates. With the odds leaning toward at least one rate cut in the first half of the year, the sector could be particularly attractive: lower rates tend to stimulate the economy, which supports bank earnings. One easy way to gain exposure is the Financial Select Sector SPDR Fund (NYSEARCA: XLF), which was up about 13% in 2025, lagging the S&P 500. The fund includes large-cap names such as JPMorgan Chase & Co. (NYSE: JPM) and Berkshire Hathaway (NYSE: BRK.B). Those large caps now trade at or slightly above the sector's forward price-to-earnings (P/E) ratio of 16.5. For investors seeking potential upside from valuation normalization, undervalued names to consider include 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 among the hottest sectors in the first half of 2025 but have cooled in the second half, as reflected in the Industrial Select Sector SPDR Fund (NYSEARCA: XLI). Industrials could see another strong year in 2026 if lower rates spur capital expenditures and boost infrastructure spending. The XLI ETF is up roughly 18%, roughly in line with the S&P 500. Many of its top holdings trade above the sector P/E average of about 24x, which itself is above the S&P average. Still, there are attractively valued names within the sector. Consider stocks such as Boeing Co. (NYSE: BA), Union Pacific Corp. (NYSE: UNP) and Honeywell Intl. (NASDAQ: HON), which all trade at forward P/Es below the sector average. Utilities: A Quiet Value Play Powered by Data Center Energy Needs The utilities sector can also offer value in 2026, and the Utilities Select Sector SPDR Fund (NYSEARCA: XLU) is one way to play it. The ETF finished 2025 up about 13%, underperforming the broader market—partly due to a 5.5% pullback in the final month of the year. Utility stocks stand to benefit from rising demand from data centers and the need to modernize aging electric infrastructure. The sector's average P/E is around 18x. Several companies trade at or below that level, including Exelon Corp. (NASDAQ: EXC), Pacific Gas & Electric (NYSE: PCG) and Algonquin Power & Utilities Corp. (NYSE: AQN).
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