Steven Cress' top 10 stocks for 2026

0:28Steven Cress. VP of Quantitative Strategy, Stephen Kress. Now, before we jump into conversation with Steve today and go through these 10 picks, we do have to get a quick legal disclaimer out of the way, so stick with me for just a second. We are not advising you personally concerning the nature, potential value, or suitability of any particular security. You alone are solely responsible for determining whether any investment, security, strategy, or any product or service is appropriate or suitable for you based on your investment objectives and personal and financial situation. This presentation is for information purposes only.

1:01Content is presented as of the date published or indicated and may be superseded by future events. It represents my opinions and Stephen Kress' opinions, which may not reflect the views of Seeking Alpha as a whole. Past performance is no guarantee of future results. And Seeking Alpha is not a licensed securities dealer, broker, U.S. investment advisor, or investment bank. And now with that out of the way, some of you may know who he is. But for those of you that do not know who Steven Kress is, he is a good friend of mine that I can say we've been working together for years on years here now. We do webinars all the time here on Seeking Alpha.

1:33If you caught any of those, you know exactly what I'm talking about. But Steven Kress has a long history in the financial industry from spending a stint at Morgan Stanley, running a prop trading firm, as well as building his own fintech empire, really, which Seeking Alpha later acquired and integrated his quant system here into Seeking Alpha's platform, which I'm sure all of you are very familiar with. And if you're not, we're going to dive a little bit deeper into that today. Steve Kress, I want to say, first off, Happy New Year. Thank you for taking the time to do this once again. I know there's a lot of people here that are giving you your flowers for last year's returns.

2:06I mean, 2025 turned out to be an incredible year for your 10 picks. I mean, from all across the board, I know we're very, very excited to hear what's going on with this year. You're going to walk us through the macro environments and everything else. But before we dive into that, give a little quick disclaimer. Steve is a little bit under the weather, everybody, but we're going to push through today. So we really do appreciate you coming and bringing the energy today, Steve. So Steve, how are you doing? How's the new year starting off? Damn, I'm doing well. And as always, thank you for organizing this and many other individuals at CK Alpha and the financial content team, the quant team, the marketing team, the product team.

2:40A lot of hands go behind this webinar and truly appreciate everyone's effort. I do have a little bit of a winter cold on the back of taking some holiday where I was skiing and in New York. I had a great time, so well worth the cold. Sounds like a rough life, Steve. It was a rough two-week period. We work hard and we party hard. But we achieved good results. As you well know from our track record, this is one of my favorite presentations of the year. Doing the top 10 stocks, we've had incredible performance for 2022, 2023, 2024, 2025. And hopefully we're going to pick some great stocks this year as well.

3:20So a little bit about what we're going to do today, Daniel. We're going to cover the state of the financial markets from 2025 to add a little context and how that impacted our picks from 2025. And in order to sort of segue into this year, we want to have a good understanding of where we were. We're going to go over why quant. And obviously, we're going to get into the top 10 stocks for 2026. So we're going to launch into our 2025 market recap. It was a very volatile year. You know, we finished strongly. It seemed when we went back to January of 2025, it was going to be a pretty good year. But that quickly turned.

3:59At the end of the day, though, when we look at it and we close the performance, our risk on sectors did well. Technology stocks were up 25%. Communication services were up 22%. And then on the other end of the spectrum, consumer staples, which is the go-to defensive sector and safe haven sector, actually finished in the red. Real estate and energy, fairly flat. Energy being up about almost 5%, but not too bad, but not nearly as good as some of the top performing sectors. But it was a volatile year. Once we got into February through April, we actually went into a pretty massive correction. And my top stocks from 2025, which started off with great performance in the first two weeks, quickly turned.

4:42And I think at one point in April, the top stocks for 2025 were down more than 20%. And then, of course, came roaring back to finish up close to 45%. I think something else that was interesting about this year, even with the risk on sectors doing well, we had gold reach historic highs. And typically, gold will do well. It's a safe haven area. So when markets are correcting, and we did have that phase, but we've really been building momentum over a period of years for gold. There was the financial crisis. There was COVID. There were trade wars. And, of course, central banks all over the world have been buying gold.

5:21And that's helped to bring it to its record highs. So a little bit about the AI frenzy as well, because that was a big part of 2024 and 2025. And we got to a point in 2025, really closer to the beginning of the fourth quarter, where people thought basically all the good news was priced in. Our MAG7 stocks, which are very AI-driven now, they trade at a huge PE premium. The 4P is about 31 times versus the S &P, if you strip out the MAG7, we refer to it as the S &P 493. The multiple is only 22 times, which seems a lot more realistic than the S &P with the MAG7 stocks. The MAG7 stocks continue to be top heavy for the overall index.

6:14Those seven stocks are about 35 % of the total market cap of the S &P 500. But these companies have been spending a tremendous amount of money on AI. Hyperscalers are committing enormous capex to AI infrastructure, with more investors asking whether the current projects are actually generating enough return to justify those costs. The CapEx share of operating cash flow for hyperscalers hitting 60%. So if you go back to, say, 2012, it was below 20%. So an absolutely huge increase. And that would be Amazon, Google, Microsoft, Meta, Oracle as the hyperscalers that are putting so much capital into AI.

6:57So the big question and the big fear, had these stocks hit their high that were within the direct or indirect AI hemisphere. And a lot of those fears were kind of answered as we got into earnings for the third quarter. NVIDIA had very strong earnings. They were one of the initial stocks to really benefit from AI. Oddly enough, the stock sold off on the good news. But investors really figured out many other of these companies that are directly or indirectly related to AI, also had good earnings. So the market actually quickly rebounded on that. And you're going to see a central theme from the stocks that we had from 2025 and even the stocks going to 2026.

7:43Even with the diversification in sectors, there still seems to be an AI theme running through most of these stocks. So as I mentioned, it was a really volatile year. And I think sometime around the end of January, we had what was referred to as the DeepSeek shock. And that was a Chinese company claiming that they could do AI at a much more efficient rate. And many investors were thinking, OK, maybe not as much CapEx has to be going into these AI companies and the data centers and even the utility companies that provide the power for the data centers. So that sort of kicked off the potential concept that many of the AI and technology stocks were overvalued.

8:26And on January 27th, we saw NVIDIA drop by about 17%. We saw the semiconductor index drop by 9.2%, and even the NASDAQ down by 3%, and the S &P 500 down by 1.5%. And we continue to see the markets take a pretty hard hit. The S &P at one point between February and April was actually down 15%. And as I mentioned, those top stocks of 2025, they were down more than 20 % on average. But of course, if you look after January 28th, we saw a rebound in the stocks and the sectors. So 2025 was really defined by whipsawing, where we saw extreme fear and extreme greed. Chip stocks were hit hard, as I mentioned, during the AI route, and tariffs early in the year really roiled markets as well.

9:15There was a tremendous amount of uncertainty. Historically, economists and market strategists know that tariffs are not good for markets. And we saw really some of the highest tariffs ever announced. But of course, the way that it was done, really the White House was leading with a bit of jawboning and dealmaking as opposed to setting concrete tariff levels and keeping it there. We saw a lot of retraction on tariffs and coming up with levels that were much lower than expected. And by the time we got to, I think that Liberation Day, especially where there was an agreement with China on a flat tariff rate, things really started to rebound.

9:58But all in all, there was a lot of uncertainty from the end of January really through to the beginning of May. I'd say something consistently that did help the market despite the tariffs, despite the extended stocks on AI and fears surrounding the overall market. Corporate earnings were pretty strong throughout the year. And a lot of innovation from AI and those strong corporate earnings helped us provide some fundamental support to the market. So as we're coming into 2026, I would not be surprised if we continue to see a seesaw of anxiety, but we also see strong fundamentals, and that could foster some volatility in 2026.

10:39Key aspect of the volatility for the markets really were tariff related early in the year. Deescalating trade disputes led to targeted hikes on EVs, batteries, chips, and other strategic sectors, and even went through to the Q4 of 2025, where new tariffs injected more volatility into the market around the October and November timeframe. The Nasdaq actually briefly entered bear market territory, with the S &P declining nearly 20%. And I recall it being at 15%, but in fact, it was about 20%. And as I said, those top 10 stocks really took it on the nose. And if you're a member of AlphaPix, they really took it on the nose too.

11:21That decline during that period far exceeded the market. But of course, when the market returns to fundamentals away from sentiment and fear, stocks with strong fundamentals really rally strongly. And our top 10 proved that. And our AlphaPix proved that as well too. This is something I want to highlight. Corrections do happen. Not sure if we're going to have a correction again this year, but certainly we did have a correction last year. And this is really important to highlight. Fear creates losses. If you panic during those corrections and you sell, you will lose money. However, conviction creates opportunity.

11:59And the conviction lies in stocks with good fundamentals. So it's kind of important to, you know, you'll hear the talking heads during market corrections. Fear will be abound in the market. Sector rotations will occur to safe haven sectors, to cash, to gold. That is fear-driven. But stocks with good fundamentals, those stocks will get clobbered during those periods, but their earnings and their revenues tend to stay stable. And that's a perfect opportunity to really identify stocks that have tremendous potential. When you see that they're coming through with their earnings and their revenues, you just have to sort of ignore what's driving markets down.

12:40We do have conflicting economic data at this time. And that has led to the rate cuts that we saw in the fourth quarter. We had three cuts. Really, the inflation has always been a concern. We haven't seen inflation spike up, but it still continues to be sticky. But what the markets were really concerned about, it was labor data. And this labor data, which continued to get weaker and weaker, really acted as the inspiration and catalyst for the Fed to start lowering rates. In May, And ironically, Moody's downgraded the US credit rating during May. And that was pretty much the end of the correction.

13:18It doesn't surprise me at all because it always seems like the rating agencies come in when the worst is over. And that kind of confirmed it. In a way, I feel like once Moody's downgraded the market, it actually started to rally from that point. So it's a contrarian indicator when these agencies tend to downgrade. So where does this bring us right now? Coming into January, we have on January 28th, the next FOMC meeting. And at this point, interest rate traders actually feel there is a fairly good balance where rates are and the economic data. So at this point, 85 % of interest rate traders actually expect no cut in January of 2026.

13:57They're going to want to just see how the data plays out. They're going to want to see how corporate earnings come out, and eyes will continue to focus on the labor market and inflation. But right now, interest rate traders are betting that there will be no cut in January. For 2025, our top 10 stocks were up 45 % from January 9th to the end of the year. The S &P 500 on a market cap weighted basis was up 17.6%. And our top 10 stocks, as I mentioned, up 45.68 % for 2025. So we had a really good year for 2025 for our top 10. If you looked at 2024, and you actually held the stocks, the return is even more amazing.

14:40So the return for the top 10 stocks for 2024, should you have held it to December 10th of 2025, you were up 356 % versus the MAG-7 up 103 % and the S &P 500 up 47%. So I think we're really establishing a fairly good track record. And going back to 2023, if you held those stocks from January 5th, 2023 to December 10th, 2025, you are up 187 % versus the S &P 500 up 85 % for the same period. So if we're doing our job, hopefully we'll have some great returns for 2026 as well. So without further ado, we're going to get into our top 10 stocks for 2026. We're going to lead off with Micron Technology, ticker symbol MU.

15:33This is a big company, market cap$355 billion. It is a quant strong buy. And in the IT sector, it ranks one out of 536 stocks. and within the semiconductor industry, it ranks one out of 68. Now, I'm going to tell you right away, this stock has definitely performed well over the last 52 weeks. It was up 254%. But as I say, during all these webinars, do not pay any attention to that long-term performance. That performance is just a great indicator that the company is doing well, it's outperforming the sector, the product is right, but that should not be utilized as a point of fear, which many people do.

16:19They're afraid to chase stops. So on an evaluation basis, it's actually cheaper versus the sector as indicated by the B plus grade. But more importantly, as I mentioned, we don't want you to be fearful of the price appreciation. You'll see the valuation grade six months ago, and it was actually a D plus. So the valuation framework is actually better today. Okay, okay, this stock is actually cheaper today than it was six months ago. So despite that 254 % increase over the last year, you're actually getting a better valuation framework than you did a year ago. At six months ago, you could see the D plus grade versus B plus right now.

16:57The growth of the company has remained very strong. It's A plus versus the information technology sector. And that has not changed. It was the same six months ago. Profitability very strong at A plus. This is almost a pure A plus report card with the exception of valuation, which is a B plus. As we mentioned, the stock at this point up 233%. And the quant system actually has a strong buy in the stock. And that has served us well. Over the last month, the stock is up 34%. So the stock, the strong buy has definitely been a good indicator of buying, but it's definitely not over. If we click in growth, and you can see this is an A plus report card for the most part, from a growth perspective, the forward growth rate for Micron is 51%.

17:44Hence the A plus versus the sector with a forward growth rate of 8.27%. So you can see it's at a 525 % premium to the sector. So we love it on revenue growth. And we go to the bottom line and we look at EPS on a diluted basis. going forward, you can see the growth rate is 211 % versus the sector at 13%. And then if we look at the long-term growth rate, and this is a very important factor, it's the EPS forward long-term growth rate, which is a three to five-year CAGR. Analysts estimate that to be at 47 % versus the sector at 15.8%. So our quant model, it is backward looking and forward looking as well, Because what we do, obviously, we're taking history, we're bringing that into our algorithm, but we're also bringing analyst consensus estimates into our algorithm.

18:36So this way we factor in future growth. And again, we're looking at revenue growth, we're looking at EBITDA growth, we're looking at EPS growth. So we're taking those analyst consensus estimates and putting it into our model. We look at profitability. You can see it's overall an A plus for Micron technology. EBIT margin is an A plus. EBITDA margin is an A plus. Return on common equity is an A. You can see it's at 22 % versus the sector at 6.3%. So we not only can compare it to the sector, but on most of these tables, you could actually look at the five-year average. So right now you'd see the return on common equity is 22 % now.

19:18the five-year average was 7%. So the current ROE is significantly higher than it was for the five-year average, but also significantly higher than the sector. And I love that when that happens. When I have a company that looks good compared to its five-year average, but also much stronger than the sector, that's a buy for me. Hence why Micron Technology is one of our top stocks. The stock is up a tremendous amount, but look at the Ford PE. It's actually only 9.7 times compared to the sector at 24 times. So this stock on a forward PE basis is at a 60 % discount to the sector. And if we look at my favorite metric, PEG, on forward PEG, which combines both PE and the growth rate into one metric, it's an A plus at 0.2 versus the sector at 1.66.

20:06This stock is at an 87 % discount to the sector. So despite that massive run up in the stock, it's still immensely cheap compared to the sector. And obviously, as I pointed out on the growth, you can see the growth is significantly stronger than the sector. So this is why it's one of our top stocks for 2026. Stock number two, Advanced Micro Devices, ticker symbol AMD. This is another information technology company, very large as well, market cap$363 billion. This company ranks number 17 out of 536 in the IT sector. And within semiconductors, it ranks five out of 68. The one-year return is 70%.

20:48But we still like this company as well. It had been a hold for a good portion of the year, briefly got into buy territory, back to hold. And one of the reasons why is because the valuation was at a D level. But you could see now the valuation framework, it's actually C minus versus D plus six months ago. So the valuation framework is slightly better, but the growth is still very strong. Profitability is very strong, but the momentum of the stock has picked up significantly. And momentum is a really important factor. Indeed, you could look at empirical data going back over 200 years. And of all these factors that we look at, and even if you break it down to like PE or ROE or price to book or revenue growth or earnings growth, One of the best and most predictable indicators is momentum as a factor.

21:41And importantly, the momentum grade now is an A versus six months ago where it was a C plus. So really strong factor grades from that standpoint. But the company has really good earnings growth rate as well. It has 45 % EPS forward long-term growth rate for that three to five-year CAGR, which, as I mentioned, is really important compared to 15 % to the sector. That's for ROE growth rate, not the ROE itself, but the actually ROE growth rate is 28 % versus the ROE growth for the sector at 1.76%. So ROE for this company is growing much, much faster. And the PEG at 1.24 times is at a 25 % discount to the sector.

22:25So I really do like it from that valuation standpoint. Our next stock is Sienna Corporation. Ticker symbol C-I-E-N, market cap$34 billion, a quant strong buy. Within IT, it ranks three out of 536 stocks. And within the communications equipment industry, it ranks two out of 38. The one-year return on the stock is 166%. You can see the valuation is a D plus now versus C plus. So that has dropped, but you can see growth is an A minus. So it's still very strong. Momentum comes in at an A plus now versus six months ago where it was a B. Importantly, analysts like this company more now than they did six months ago.

23:11So you can see that revisions grade is a B plus versus the D. And what I wanted to highlight here is the EPS revision. So this is one of the reasons why we're highlighting the stock. You can see it's a B plus now versus a D six months ago. So analysts actually like this company more. And as we look at the EPS revision grade, you can see it's a B plus. So what this is, it's actually the quantity of analysts that are taking their estimates up or down. So in the last 90 days, we've had 15 analysts who have revised their earnings estimate up, and zero have revised it down. And that is for the full year, for the quarter.

23:47This is the upcoming quarter. In the last 90 days, 14 analysts have revised their estimates for the upcoming quarter, and zero have taken it down. So increasingly, analysts are really liking the stock. Hence, it's one of our picks along with very strong fundamentals. If we look at the growth for the company, you'll see a lot of green here between A's and B's. If we look at the forward revenue growth, it's 19 % compared to the sector at 8.27. And if we look at the EPS diluted growth going forward, it's a 55 % growth rate compared to the sector at 13%. So I'm loving the growth. And in terms of valuation, it's a bit expensive.

24:26But if you look at my favorite metric, again, where you combine both growth and PE, it's actually at a 36 % discount. So for me, I really like it on that peg basis. And a D plus, that still puts it in buy territory for me. C minus, D plus, even D territory. If I have a strong peg ratio there, I still like it. The time that I pull back and most stocks will go to a hold that will default to hold as if it goes from a D to D minus. Once a stock hits a D minus, that kind of says, you know what, this is getting rich. So the stock can be a hold. That doesn't mean sell it, but it does mean it's getting expensive.

25:05So it's something you just want to sort of hold on and pay attention to. And of course, if it flipped into F territory, you might likely see the stock go to a sell or strong sell, which just means it's going in the stratosphere. And the concern would be, especially if that peg is super expensive as well, that really means the stock is quite overvalued. Stock number four, Celestica. And this is one of the only stocks that has been repicked. It has been a tremendous winner for a top 10 stock, as well as for AlphaPix as well. Market cap on this company is about$34 billion. It is a quant strong buy.

25:40In IT, it ranks five out of 536. And this industry that it's focused in is electronic manufacturing services, where it ranks one out of 18. Over the last 52 weeks, the stock is up 191%. Now, having said that, as Dale highlighted, a lot of people are sometimes fearful when a stock has made a big run. Let's go to valuation. And you will see the valuation grade of C minus is the same where it was six months ago. So the valuation framework hasn't changed at all despite the stock going up. But you know what has changed is the company's growth. The growth factor grade is an A - now versus a B six months ago.

26:20So growth is actually getting stronger for this company. Valuations stay the same. So it really makes it look attractive to us. This company, if you're not familiar with it, they manufacture complex hardware platforms for hyperscalers. Revenues grew about 20 % year over year, and EPS year over year climbed about 52 % in the third quarter. The forward EPS diluted growth rate is 51 % versus the sector at 13%. They have about$550 million in cash from operations. And the peg is at 1.31 times, which puts it at a 21 % discount to the sector. Looking at stock number five, coherent, ticker symbol COHR.

27:04Market cap is currently$33 billion. QuantStrongBuy, another IT stock, ranks eight out of 536. This is also an electronic components company where it ranks one out of 21. It's had a wonderful return over the last year. But if we look at the valuation, we could see it's a C - now versus a B-, so it's still a bit rich. However, C - really puts it in line with the sector, but the growth far outpaces the sector. So it has an A minus growth grade now. Profitability deteriorated a little bit, but momentum is very strong. And the EPS revision grade has actually improved over the last six months. And you can see Coherent has done incredibly well.

27:51This is a vertically integrated manufacturer leader, which serves high growth markets and AI data centers. And the stock has delivered nine consecutive double beats of top and bottom line, which is very, very impressive. Earnings grew at 56 % for its three to five-year CAGR, which is quite strong. It has a 50 % forward ROE growth rate. Again, not the ROE itself, but the ROE growth rate at 50%, which crushes the sector, which has a ROE growth rate of only 1.76%. And the peg is at a 30 % discount. So we are liking Coherent. Now we're going to take us out of the IT sector. Those top five stocks that we showed pretty much revolved around information technology.