American stocks have performed well over the past three years, with annualized returns greatly exceeding the long-term average of 10.5%. That is true of both the S&P 500 index and the tech-heavy Nasdaq. The big question now is: What are the best bets in 2026?
"At the end of every year, I get the question of whether investors should buy stocks that have dropped or should I stick with my winners," says Sam Stovall, chief investment strategist at research company CFRA. "It depends on what happened the prior year."
Broadly speaking, if the market was loss-making in the previous year, then buy low. If the market is up, then keep those stocks that performed well, Stovall says. He bases this on deep analysis of how stocks have performed for decades.
It should be evident that 2026 should be a "stick with the winners" year. By mid-November, the S&P 500 had rallied 16% in 2025, according to data from Morningstar. The returns for 2023 and '24 were both over 20%. The tech-heavy Nasdaq followed a similar pattern but with far better annual returns over the same period.
Subsector leaders
The S&P 500 comprises 11 broad sectors, which can be further divided into 127 subsectors. Stovall selected the top-10 sub-industries with the highest price returns and then chose a favored S&P 500 stock in each category.
The top-performing subsector was electronic components, and CFRA's favored stock in the subsector is Amphenol Corp. (APH). The company sells its products to various industries, including automotive, defense systems, broadband, and mobile device makers. The stock gained 93% by mid-November.
The gold mining subsector was ranked third, and the favored stock is Newmont Corporation (NEM), which was up 136%. It's the largest global gold miner and has managed to weather the ups and downs of its niche since its founding in 1916.
Stovall also likes Universal Health Services (UHS) as the preferred stock in the health care facilities sub-category, which ranked fifth. The stock had total returns of 25% through mid-November. The company has grown its revenue every year since 2020, and the stock is priced at a modest 9.6 times projected earnings.
AI infrastructure
Artificial intelligence goes beyond chips, allowing investors more stock choices in an area where huge growth is forecast for the coming years. There are broadly three components of AI, says Nitin Sacheti, founder and portfolio manager of New York-based Papyrus Capital.
First, there are widgets, also known as small hardware components, such as sensors for temperature, humidity and airflow, that help operate data centers more efficiently. Additionally, there are Neo Clouds, a new type of cloud service that specializes in ultra-high-performance computing, which AI requires.
Then there is the much-needed electricity and cooling for those data centers and, finally, the software that delivers information to the customer. Forty percent of U.S. electrical power is generated from natural gas, so higher electricity demand will benefit natural gas companies such as Golar LNG (GLNG), which is down 9%.
Sacheti is also confident that 2026 will be a boom for software companies. "We'll see dispersion of AI," he says. In other words, more people will likely adopt the new technology. That's because AI software is improving fast and will continue to do so.
Microsoft (MSFT) is likely to be one of the stocks to benefit from more AI users, Sacheti says. The stock rallied 21% and has consistently grown its revenue every year this decade. If the company continues growing, investors should benefit handsomely from developing better AI software.
Household staples
Not all professional investors are focused on fast-growing tech companies. Consumer staples companies, which produce essential products such as toothpaste or laundry detergent, were dumped by investors in 2025. The Vanguard Consumer Staples ETF (VDC) declined 5% from August 19 through mid-November, while the S&P 500 rose approximately 5%.
The decline reflects consumers' preference for staples over luxuries. "With America struggling right now, that's what people do," says Ryan Stever, chief investment officer at Intech, an exchange-traded fund company in West Palm Beach, Florida. They turn to staples, not luxuries.
Yet stock prices for staples stocks have fallen, which may be an opportunity for investors to buy staples ETFs or stocks such as Procter & Gamble (PG) at a lower-than-usual price. The stock declined 12% through mid-November.
"It is often forgotten that the major component of U.S. GDP is still the consumer," Stever says. "I think that when times are tighter, we could see a return to some basic needs."
Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that's right on the money.
