4 Cheap Stock Picks We Still Like for 2026 I December 22, 2025

Key Concepts

• Intrinsic Value: The present value of all future free cash flows a company will generate, discounted at its weighted average cost of capital.
• Margin of Safety: The difference between a stock’s market price and its intrinsic value; investors seek stocks trading at a significant discount.
• Economic Moat: A company’s sustainable competitive advantage that protects it from competitors. (Narrow, Wide)
• Free Cash Flow: Cash flow available to the company after accounting for capital expenditures.
• Weighted Average Cost of Capital (WACC): The average rate of return a company expects to compensate all its different investors.
• Trading vs. Investing: Trading focuses on short-term profits from price movements, while investing focuses on long-term value based on fundamental analysis.
• Star Rating: Morningstar’s assessment of a stock’s attractiveness, ranging from 1 (Sell) to 5 (Buy).
• Dollar-Cost Averaging: Investing a fixed amount of money at regular intervals, regardless of price.

Investing Philosophy & Approach

Morningstar’s investment philosophy centers on long-term investing, emphasizing fundamental analysis to determine a company’s intrinsic value. This contrasts with short-term trading, which seeks to profit from market fluctuations. The core principle is to buy stocks trading at a significant margin of safety below their intrinsic value and sell those trading at a premium. Calculating intrinsic value involves discounting all future free cash flows using the company’s weighted average cost of capital (WACC). Acknowledging that predictions are imperfect, the strategy prioritizes being right more often than wrong, riding winners, and cutting losses. The approach isn’t necessarily suited for all investors, as individual stock analysis requires significant time and effort; diversification through ETFs and mutual funds is often recommended, particularly for beginners.

Stock Picks Review – 2025 Performance

This segment reviews Dave Sakara’s stock picks from 2025, categorizing them into “Hits” (outperformers) and “Misses” (underperformers). The review aims for accountability and learning from past decisions.

Stock Misses (Underperformers)

• Baxter International (BX): Initially recommended in March and July 2025, Baxter suffered from supply chain issues, inflation impacting margins, and failure to renegotiate contracts. Despite being a five-star rated stock currently (December 15th), trading at half its fair value, the turnaround timeline is uncertain. 2026 revenue growth is projected at only 1.5%, with a slight contraction in 2027. Operating margin is expected to improve to 6.9% in 2026.
• FMC Corporation (FMC): The worst performing pick of the year, down 72% YTD. Patent expirations and generic pressure were more severe than anticipated. Credit ratings have weakened (BA3/Negative Outlook). While the stock is deeply undervalued, a turnaround depends on new patented products gaining traction. 2026 revenue is projected to stabilize, with a slight growth, and margins to recover to 14.1%. EPS estimate for 2026 is $2/share, trading at 7x earnings.
• Dow Inc. (DO): Recommended earlier in the year, Dow faced headwinds from oversupply in the global commodity chemical market and weak demand in key sectors (construction, auto). Despite a dividend cut, the company is expected to maintain its current dividend. Credit ratings are weakening (BA2B/Negative Outlook). Revenue is projected to decline 4% in 2026, with a slow recovery thereafter. EPS estimate for 2026 is $1.89. Trading at 10x 2026 earnings.
• Bath & Body Works (BBWI): A pick in early March, BBWI was impacted by a weaker-than-expected holiday season outlook. The company is undergoing a turnaround plan. Revenue is expected to decline, with margin expansion to 17.4% by 2029.
• America Real Estate (COD): Recommended in early summer, America Realty suffered from overbuilding of cold storage capacity. The market is oversupplied, leading to price competition. A recovery depends on demand increasing and less competitive players exiting the market. The company maintains an investment-grade credit rating but faces a long recovery period.

Stock Hits (Outperformers)

• Wayfair (W): A no-moat company, but presented a unique opportunity due to market overreaction. The stock tripled after being recommended at $32, now trading in the upper $90s. It’s approaching a two-star rating, suggesting limited further upside.
• Barrick Gold (GOLD/B): Benefited significantly from rising gold prices. Recommended in January and reiterated in June. The investment thesis largely hinged on gold price appreciation.
• Alphabet (GOOGL): A repeat recommendation throughout 2025. The market initially underestimated the company’s ability to navigate AI disruption and potential antitrust issues. Strong performance in Google Cloud and AI integration drove growth. Fair value is now $340, with the stock trading at a 9% discount.
• Advanced Micro Devices (AMD): Initially recommended when the market doubted AMD’s AI capabilities. The stock benefited from strategic partnerships (OpenAI) and positive earnings reports. Fair value has increased, but the stock remains attractive.
• Marvel Technology (MRVL): Benefited from strong demand for its AI-related products. The stock experienced volatility but ultimately delivered strong returns. Fair value was recently raised to $120, and the stock is currently trading near that level.

Sell Recommendations – Review

Dave reviewed three previous sell recommendations that proved correct, and one that didn’t.

• American Waterworks (AWK): A successful sell recommendation, as the stock declined after being recommended to sell in May. It’s now a four-star rated stock at a 6% discount.
• Philip Morris (PM): A successful sell recommendation, as the stock declined after being recommended to sell in May.
• Wingstop (WING): A sell recommendation that didn’t fully play out as expected. The stock has pulled back but remains overvalued.
• Devon Energy (DVN): A successful sell recommendation, as the stock declined after being recommended to sell.

2026 Stock Picks (Repeat Recommendations)

Dave reiterated his positive outlook on the following stocks heading into 2026:

• Biogen (B): Four-star rated, 20% discount, narrow moat. Driven by the potential of its Alzheimer’s drug, Lukembi.
• Microsoft (MSFT): Four-star rated, 20% discount, wide moat. A diversified tech giant with strong growth potential in cloud computing and AI.
• LPL Financial (LPLA): Four-star rated, 24% discount, narrow moat. Benefiting from market tailwinds and increasing assets under management.
• Devon Energy (DVN): Four-star rated, 30% discount, narrow moat. A low-cost oil producer positioned to benefit from stable oil prices.

Conclusion

The episode provided a comprehensive review of Dave Sakara’s 2025 stock picks, highlighting both successes and failures. The key takeaway is the importance of a long-term, value-based investment approach, coupled with continuous monitoring and adjustments based on changing market conditions. While acknowledging the difficulty of predicting market movements, the review emphasized the value of fundamental analysis, margin of safety, and a willingness to learn from past mistakes. The reiterated stock picks for 2026 offer a starting point for investors seeking undervalued opportunities with long-term growth potential.