Industrials Are Quietly Outpacing the Market: 3 Stocks to Watch

Key Points

• The industrial sector, represented by the XLI ETF, has outpaced the broader market in 2025.
• YTD's top-performing industrial stocks include Axon Enterprise, GE Aerospace, and RTX.
• With continued capital inflows and a favorable macroeconomic backdrop, industrials remain well-positioned for further upside this year.

The industrials sector, represented by the Industrial Select Sector SPDR ETF NYSEARCA: XLI, has been a quiet outperformer so far in 2025, posting a 5.2% gain compared to the benchmark’s 4.3%. What’s even more notable is that the sector ETF’s current positioning suggests the potential for further upside, given its technical setup. Having consolidated for nearly a month, XLI appears to be edging closer to a potential breakout higher, especially as the broader market continues to reach new all-time highs.

With this outperformance, strong inflows into the sector, and an overall bullish setup, it’s worth looking at industrials and some of the most attractive individual stocks within the sector.

The Industrial Sector Has Outperformed the Benchmark in 2025

The industrial sector has outpaced the broader market in 2025 due to several key catalysts. One of the most significant drivers is the trend of reshoring, where manufacturing operations are returning to domestic markets. This shift is driven by geopolitical stability concerns, supply chain resilience, and favorable government policies encouraging local production. As a result, industries such as aerospace, machinery, construction, and transportation, all significant components of XLI, are benefiting substantially.

Furthermore, technological advancements in automation, electric vehicles, and renewable energy infrastructure have fueled increased demand for industrial products. Government investments in infrastructure and defense spending have also provided strong tailwinds for the sector. Notable companies within XLI, including Caterpillar, Deere & Co., and GE Aerospace, continue demonstrating strong fundamentals, contributing to the ETF’s appeal.

Another factor bolstering the sector’s performance is market rotation. Investors have shifted capital from high-growth technology stocks to cyclical industries, such as industrials, which stand to gain from economic cycles. The XLI ETF’s relatively low expense ratio of 0.09%, a dividend yield of 1.16%, and high liquidity further enhance its attractiveness, drawing increased capital inflows that amplify its performance.

While industrials remain sensitive to economic cycles and global trade dynamics, technological innovation, policy support, and investor interest have provided a solid foundation for continued growth in 2025. 

Given these favorable conditions, familiarizing oneself with three of the strongest industrial stocks YTD is well worth it.

3 Industrial Giants Leading the Sector

Axon Enterprise Surges 19.4% YTD, Outpacing the Market

Axon Enterprise NASDAQ: AXON, a leading provider of law enforcement technology solutions, including less-lethal weapons, body cameras, and cloud-based software, has significantly outperformed both the sector and the broader market. As of Tuesday's close, the stock has surged an impressive 19.4% YTD. Additionally, Axon set a new all-time high after closing at $710.01.

With its upcoming earnings report scheduled for February 25, the stock appears well-positioned for continued momentum after its recent breakout. Analysts remain bullish on Axon, maintaining a consensus Buy rating. For Q4 2024, the consensus estimate for EPS is $1.40, with projected revenue of $567.5 million. Given its strong financials, return to shareholders, and bullish technical positioning, Axon remains a standout in the industrial sector.

GE Stock Soars 80% Over the Past Year, Outperforming the Market

GE Aerospace NYSE: GE, the largest holding within the XLI ETF, has continued its remarkable surge in 2025. The company is a global leader in jet and turboprop engines, aircraft components, and integrated aviation systems. Headquartered in Evendale, Ohio, GE Aerospace has already gained nearly 26% YTD, bringing its one-year performance to an astonishing 80% as of Tuesday’s close.

Despite its RSI beginning to creep into overbought territory, the stock remains in a strong uptrend, consolidating near all-time highs above previous resistance. GE recently delivered impressive earnings, reporting EPS of $1.32, a 27% beat over expectations, along with revenue of $9.8 billion, surpassing estimates by 4.13%. This robust earnings performance further supports the stock’s continued rally.

RTX Gains 7% YTD, Outpacing the Industrial Sector and Broader Market

RTX NYSE: RTX, the third-largest holding in XLI, is a multinational aerospace and defense company providing advanced systems and services to commercial, military, and government customers worldwide. Although its YTD gains of nearly 7% may seem modest compared to Axon and GE Aerospace, RTX has still outpaced both the industrial sector and the broader market.

After briefly achieving new highs following an impressive earnings beat, RTX has since pulled back toward a higher timeframe support level, potentially presenting an attractive buying opportunity. The company’s Q4 2024 earnings, released on January 28, 2025, showed an EPS of $1.54, beating the consensus estimate of $1.35 by $0.19. Given its solid earnings performance and positioning, RTX remains an appealing long-term industrial play.