The Top 2 Industrial Stocks to Buy Right Now

Industrial stocks make up the backbone of the global economy. Even though sectors such as software or consumer brands may grab the headlines, none of their success would be possible without the know-how of the global industrial base, making them underrated investment opportunities for your portfolio.

What makes industrials difficult is the cyclical nature of end-market demand, which can make timing investments in these stocks tricky. The key is to buy high-quality businesses in sectors poised for growing demand in the years ahead. Using this framework, here are two top industrial stocks you can buy for your portfolio right now.

Managing the housing cycle

A sector that has faced compressing demand in the United States is housing. After the pandemic boom in home buying, rising mortgage rates and high home prices have made it unaffordable for the vast majority of Americans to purchase a home, freezing the sector and keeping people renting.

This has impacted homebuilders such as Lennar Corp. (NYSE: LEN). Its revenue follows the housing cycle, booming during 2021 and 2022 before stalling out in recent years. Due to affordability concerns and the current surge in renting, Lennar has been forced to increase buyer incentives to sustain demand, which is impacting its profit margins. Gross margin has slipped to 17% compared to close to 30% at its peak. Operating margin has gone from 20% to a measly 6.5% over the last 12 months.

Whether this year, next year, or somewhere down the line, housing market activity will pick up as supply and demand align once again. Once this happens, demand for Lennar's services will increase, leading to growing revenue along with simultaneous margin expansion. Combined, this will lead to soaring levels of profitability for the company.

With the stock down 50% from all-time highs, investors who buy today can get Lennar stock on the cheap before the next housing market up cycle. With a price-to-earnings ratio (P/E) of just 13.5, even on these depressed earnings, Lennar stock looks very cheap for any investors with a time horizon longer than a few quarters.

Image source: Lennar Corp.

Growing war needs

Increasing levels of global conflicts between nations have changed the nature of the defense industry, adding a level of urgency that was not around in times of relative peace.

This has increased the U.S. government and its allies' dependence on defense contractors such as Lockheed Martin (NYSE: LMT). The company sells products and manages programs, including fighter jets, missiles, mission systems, and space systems, some of which are seeing growing demand due to conflicts such as the war in Iran. For example, Lockheed is greatly increasing production of its missile and missile interceptor systems, which are being used extensively.

Along with the consistent revenue that comes from the F-35 fighter jet program, the company reached a record backlog of $194 billion at the end of last quarter. All four of its segments are highly profitable, generating over $1 billion in operating earnings each in 2025.

In 2026, management is guiding for $77.5 billion to $80 billion in revenue, which would be a slight increase from the $75 billion in sales it generated in 2025. It will never be a hypergrowth company, but there are many attractive parts of the defense contractor business model. First, the reliability of revenue stems from the long-term nature of defense contracts, which can last for decades. Second, programs under the cost-plus model exhibit stable profitability, providing a layer of guaranteed earnings power for defense contractors.

Lockheed Martin's stock has begun to rise, a trend that generally occurs when conflicts arise around the globe. However, I believe investors are still underestimating the business's growth potential as the United States enters a new paradigm in its defense/war spending budget.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lennar. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.