FIDU: Industrials Sector 2026 Outlook Is Promising, Upside Is Ahead (NYSEARCA:FIDU)

Core Insights - The US industrials sector outperformed the S&P 500 and MSCI USA indices in fiscal 2025, driven by strong economic growth and unprecedented demand in the aerospace and defense industry [2][5] - The sector is projected to accelerate growth in 2026, with mid-teen percentage earnings growth anticipated due to favorable market conditions and rate cuts [2][11][26] Economic Performance - US GDP growth was resilient, with rates of approximately 2.5% in 2023 and 2.8% in 2024, expected to rise to 3% in 2025 [10] - The industrials sector's earnings growth reached 15.7% year-over-year in the September quarter, significantly surpassing the consensus estimate of 7.9% [13] Investment Vehicle - Fidelity MSCI Industrials Index ETF (FIDU) is initiated with a buy rating, targeting a price of $102 per share, indicating nearly 20% upside potential [2][6] - FIDU delivered a total return of nearly 19% in fiscal 2025, with 17% from price appreciation and 2% from dividends [5] Sector Characteristics - The industrials sector is cyclical, closely tied to broader economic conditions and interest rate policies, with demand for products and services increasing during economic expansions [7] - FIDU's portfolio includes 363 companies across 26 industries, with significant exposure to aerospace and defense, industrial machinery, and construction [15][17] Notable Holdings - GE Aerospace, FIDU's largest holding, saw an 87% increase in share price over the last year, with a revenue growth of 26% and earnings per share rising by 44% [18] - RTX Corp. experienced a 61% price gain, raising its full-year sales outlook to $86.5 - $87.0 billion [20] - Boeing's stock rose 32% with a backlog of $636 billion, indicating strong demand for commercial aircraft [21] Fund Characteristics - FIDU has a low expense ratio of 0.08% and a dividend yield of around 1%, having paid dividends for 12 consecutive years [24] - The fund's valuations are in line with broader market indices, with a trailing PE of approximately 27x and a price-to-book ratio near 5.5 [24]