5 Core Stocks to Buy and Hold in 2026 I January 5, 2026

Key Concepts

• Resilient 2025 Economy: Despite geopolitical and economic shocks, the US economy and stock market demonstrated surprising resilience in 2025.
• Value vs. Growth: Value stocks outperformed growth stocks, partially due to index construction methodologies.
• Core Stock Selection: Identifying “core” stock holdings is crucial for long-term investors, prioritizing companies with wide economic moats, strong financials, and exemplary capital allocation.
• Sector Focus: Investment opportunities exist within specific sectors like cybersecurity, utilities, energy, and consumer defensive goods.
• Long-Term Perspective: A long-term investment strategy, coupled with patience and a focus on fundamental analysis, is paramount.

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2025 Economic Performance & Market Overview

Morningstar’s review of 2025 reveals a surprisingly robust economic performance. Initial projections of 2.0% real GDP growth were revised down to 1.2% following the “Deep Seek” event and “Liberation Day” tariffs, but the final figure is expected to be around 2.1%, closely aligning with the original forecast. Inflation came in at an anticipated 2.6%, slightly above the initial 2.5% projection, which was raised to 3% after the tariffs. The Federal Reserve funds rate is expected to end 2025 in the 3.5% - 3.75% range, consistent with the original 3.25% - 3.5% forecast. Remarkably, US stocks achieved a 17% gain, marking three consecutive years of double-digit returns, despite significant headwinds including “Deep Seek”, the “Liberation Day” tariffs, and a record-long government shutdown.

Investment Strategy in 2025

The Morningstar team employed a valuation-based strategy, overweighting value stocks and underweighting growth stocks. Tactical adjustments were made throughout the year, including overweighting equities in April following an early-year sell-off and shifting to a market weight position in growth stocks when they became undervalued. This approach capitalized on market volatility, allowing for buying low and selling high. The inherent difficulty in forecasting market behavior was highlighted with a reference to Yogi Berra’s quote, “Projections are hard to make, especially about the future.” The Morningstar US Value Index outperformed the US Growth Index (17.24% vs. 14%), despite the continued prominence of the AI theme. This outperformance was partially attributed to the construction of the indexes, with the unconstrained Morningstar US Market Index (up 17.35%) benefiting from greater concentration in top-performing stocks like Nvidia.

Defining & Identifying "Core" Stock Holdings

“Core” stock holdings are foundational to a well-diversified portfolio, built upon broad market ETFs and mutual funds. These stocks are characterized by wide economic moats (cost advantage, network effect, switching costs), low to medium uncertainty ratings, strong balance sheets (investment grade credit), and exemplary capital allocation by management. Ideally, core holdings also offer a reasonable dividend yield, though this isn’t essential. Crucially, core holdings are stocks investors are confident in holding through market downturns and adding to during periods of weakness.

2026 Core Stock Picks

Four “core stock” picks were identified for 2026, based on Morningstar’s analysis:

• Palo Alto Networks (PANW): A four-star rated cybersecurity leader, trading at a 20% discount. The speaker emphasized the importance of investing in the cybersecurity sector overall, anticipating double-digit growth “for the foreseeable future” due to the prioritization of security spending.
• Duke Energy (DUK): A four-star rated utility, trading at a 5% discount with a 3.6% dividend yield. Possessing a narrow economic moat based on efficient scale, Duke Energy is expected to benefit from potential long-term interest rate declines and grow earnings in line with its 5-7% annual growth range through 2029.
• Devon Energy (DVN): Trading at a 29% discount, earning a four-star rating and paying a 2.6% dividend yield (fixed plus variable). While possessing a narrow economic moat and high uncertainty rating typical of oil producers, Devon Energy is among the lowest-cost shale producers in the US and could be a potential takeover target.
• Colgate-Palmolive (CL): A four-star rated consumer defensive stock, trading at an 11% discount with a 2.6% dividend yield. Featuring a wide economic moat based on cost advantages and intangible assets, a low uncertainty rating, and a very strong balance sheet, Colgate-Palmolive represents a rare opportunity to buy at a four-star rating.

Technical Terms Recap

Key technical terms discussed include: Real GDP, Federal Funds Rate, Economic Moat (wide and narrow), PCE (Personal Consumption Expenditure Index), Market Cap Weighted Index, Fixed Income, Equity, Capex (Capital Expenditure), Shale Cost Curve, Free Cash Flow, and Intangible Assets.

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Conclusion

The podcast segments highlight the importance of a long-term, valuation-driven investment strategy, even amidst economic and geopolitical uncertainty. Identifying and investing in “core” stock holdings – companies with durable competitive advantages, strong financials, and capable management – is presented as a key to achieving long-term investment success. The specific stock picks for 2026 reflect a focus on sectors poised for growth (cybersecurity, energy) and defensive, stable companies (utilities, consumer staples), all available at attractive valuations based on Morningstar’s star rating system.