The stock price of Aalberts Industries NV (AALBF, Financial) rose more than 5% on Friday after BofA upgraded the company's rating from "underperform" to "buy." This shift reflects growing confidence in the Dutch industrial firm, which has faced challenges in sectors such as automotive, construction, and other industries.

• Warning! GuruFocus has detected 4 Warning Sign with AALBF.

BofA analysts noted that end markets that account for more than 65% of Aalberts' revenues are expected to regain their footing. Some of the factors that are positive for this outlook include the relatively sound construction aftermarket, which has shown good signs of recovery, and the semiconductor sector, which has a good pipeline. These markets are now recovering, and so should Aalberts regain earnings growth, which should spark the re-rating of the stock.

BofA lifted its price estimate on Aalberts to 41 from 35.5 based on higher earnings estimates and a lower multiple to peers. The analysts also highlighted Aalbert's focus on portfolio optimization of its businesses, which entails divesting from operations with thin margins; he said adjusted margins and cash flow should rise within the next 1-2 years. In the long run, according to the business strategy, the company expects to achieve an EBIT margin of between 16% and 18%.

While near-term headwinds include shrinking automotive and lackluster industrial output, the strategists reckon those dour fundamentals are favorable over the longer term. This is similarly relevant to Aalberts' current stock valuation, which is significantly below its multi-year average at sector peers, suggesting significant upside potential once construction and semiconductor markets improve.

This article first appeared on GuruFocus.