10 Value Stocks for 2026: A Long-Term Compounding Portfolio

The setup for value investing in 2026 looks more favorable than it has in years. A supportive macro environment, with the Federal Reserve on a clear path of easing monetary policy, is creating the kind of financial conditions that reward careful stock selection over the next year. This easing runway should stimulate spending and lower the cost of capital, benefiting a broad range of businesses. At the same time, the market's intense focus on AI-driven narratives may be creating a valuable distraction, allowing other sectors to trade at more reasonable valuations. For patient capital, this is a classic opportunity to look past the noise.

The core thesis is straightforward. We are building a portfolio of 10 wide-moat, cash-generative businesses trading at reasonable prices. This is not a bet on quarterly earnings beats, but a disciplined path to long-term compounding. The goal is to identify companies with durable competitive advantages-what Warren Buffett calls a "wide moat"-that can protect their economic profits and reinvest them at high rates of return for decades over the long term. These are the businesses that can compound value even when the spotlight shifts.

This approach is well-positioned against a backdrop of broader earnings strength and global economic expansion the world economy is poised for continued expansion. While the market narrative is dominated by AI, the underlying economic engine is powered by steady corporate profits and consumer demand. A portfolio built on this foundation is insulated from the volatility of speculative trends. It is a strategy for the long cycle, not the next quarter.

The Core Holdings: Wide Moats and Predictable Cash Flows

The portfolio is built on a foundation of durable competitive advantages and predictable cash flows. These are not speculative bets on the next big thing, but investments in businesses with wide moats-those strong, durable competitive advantages that Buffett describes as protecting economic profits over the long term over the long term. The goal is to compound capital by owning companies that can reinvest earnings at high rates of return, insulated from the volatility of market narratives.

The selection includes several iconic global brands. Coca-Cola is a classic example, with its iconic global brand and asset-light business model that generates steady cash. American Express, meanwhile, leverages strong brand and robust customer base to create high switching costs and recurring revenue. Berkshire Hathaway's recent multi-billion-dollar stake in Alphabet underscores the appeal of a company with durable advantages in digital advertising and cloud. These are businesses where customers are loyal, and the cost to replace them is high.

Industrial and information services firms provide the portfolio's moat diversity. Caterpillar operates in a sector with high barriers to entry, and its wide moat in industrial equipment is reinforced by strategic collaborations for data center power, tapping into a structural growth theme. S&P Global also fits the profile, benefiting from high-barrier industry and regulatory protections that ensure its data and analytics are indispensable.

Financials are included for their sensitivity to the supportive macro backdrop. The portfolio leans into banks, where a still-steep US yield curve and easing policy are expected to widen net-interest margins. This is a sector where disciplined management can leverage a favorable interest rate environment to boost returns on capital.

The portfolio is diversified across sectors and geographies, avoiding the speculative AI names that dominate the current market narrative. It focuses instead on consumer staples, industrials, and financials with tangible assets and predictable cash flows. Management teams are chosen for their long-term focus and discipline, a trait exemplified by the new leadership at Berkshire Hathaway, which has vowed to run the company similarly to that of his predecessor and concentrate capital in its best ideas.

The bottom line is a portfolio of businesses that can compound value through economic cycles. They trade at reasonable prices relative to their durable advantages, offering a margin of safety. In a year where the macro environment is supportive and the market may be distracted by short-term trends, this is the disciplined path to long-term wealth creation.

The Margin of Safety and Key Risks

The portfolio's appeal lies in its disciplined construction for a specific environment. While the macro backdrop is supportive, the starting valuation point sets a more realistic expectation for returns. After a year of strong gains, global equities are likely to continue climbing in 2026, but equities' gains are not forecast to match 2025's dramatic advance. This is a crucial reality check. The margin of safety here is not in a deep discount to intrinsic value, but in the resilience of wide-moat businesses trading at reasonable prices within a favorable cycle. The expectation is for steady compounding, not a repeat of last year's explosive rally.

The primary risk to this thesis is a shift in monetary policy. The portfolio's financials and capital-intensive industrials are positioned to benefit from a long runway for easing financial conditions. A reversal of this easing cycle would pressure net-interest margins and the cost of capital, undermining the very tailwinds the strategy relies on. As analysts note, sticky inflation overall remains a theme, which could limit the Federal Reserve's ability to cut rates further. This is the single most important watchpoint: the durability of the easing cycle.

A key signal of management conviction will be the deployment of cash. Berkshire Hathaway's record level of cash on its balance sheet is a classic example of a disciplined operator waiting for a clear opportunity. For the portfolio's holdings, a similar posture is prudent. The ability to reinvest capital at high rates of return is the engine of compounding. Management's patience in holding cash, rather than deploying it prematurely, is a sign of long-term thinking. Their eventual deployment into new opportunities will signal where they see the best returns.

Ultimately, the portfolio's resilience hinges on the ability of its wide-moat businesses to maintain their economic advantages through any macro headwinds. These companies are built to withstand pressure, but their moats must hold. The evidence shows they benefit from strong pricing power, stable profit margins, and the capacity to reinvest. This is the core of the value proposition: durable competitive advantages that protect earnings and ensure long-term value creation, even if the path is not always smooth. For patient investors, that is the true margin of safety.

Catalysts and What to Watch

The long-term compounding thesis for this portfolio rests on a few key watchpoints. The primary catalyst is not a short-term price pop, but the steady accumulation of earnings and dividends over many years. The portfolio's value will be validated by its ability to generate predictable cash flows and compound capital through economic cycles, a process that requires patience and discipline from both management and investors.

First and foremost, monitor for any significant deviation from a concentrated, low-turnover strategy. The portfolio's strength is its focus on a handful of wide-moat businesses, a philosophy deeply embedded in the culture of its parent company. As noted, Berkshire Hathaway's new CEO, Greg Abel, has vowed to run the company similarly to that of his predecessor and to concentrate capital in his best ideas. This is the disciplined playbook. Any shift toward a more diversified, high-turnover approach by management would signal a loss of conviction and a departure from the value investing principles that underpin the portfolio's margin of safety.

Second, track the performance of the portfolio's cash position. A record level of cash on the balance sheet is a sign of management's patience, waiting for clear opportunities until bargains present themselves. The deployment of this capital into new, high-return opportunities will be the clearest signal of management's current conviction. For now, the cash hoard is a strength, providing a buffer and optionality. Its eventual use will confirm that the best ideas are still out there.

Third, watch the resilience of the wide-moat businesses against macro headwinds. The portfolio is built for a supportive cycle, but the true test of a durable competitive advantage is its ability to maintain margins and pricing power when conditions turn. Companies with wide moats, as defined by strong pricing power, stable profit margins, and the capacity to reinvest, are best positioned to weather storms. Their ability to protect earnings during periods of inflation or economic slowdown will be the key metric for long-term value creation.

The bottom line is that the catalyst is the long-term compounding of earnings and dividends. For patient investors, the most important thing to watch is the consistency of execution. It is the quiet, steady work of managing a concentrated portfolio of durable businesses that will compound capital over decades. The market's noise will come and go, but the focus should remain on the quality of the underlying businesses and the discipline of their stewards.