By Lauren R. Rublin
The second installment of the 2026 Barron's Roundtable offers 30 stock picks from five masters of the game. Some names are wholly familiar, like Home Depot, Starbucks, and Nike, while others are utterly obscure. Extra points if you can identify which British company just bought a maker of biodegradable sneaker midsoles.
What most of these companies have in common is that their shares are undervalued -- but stand a good chance of becoming less so as the year unfolds. Some have suffered a temporary setback brought on by troubling economic or industry trends. Others have fallen victim to managerial missteps that consigned their stocks to the doghouse and left their ranks in disarray. Still others are plays on the artificial-intelligence boom, or takeover targets, or beneficiaries of an upturn in consumer spending, courtesy of a bull market that just doesn't want to quit.
Our panelists also have something in common: a passion for stock-picking that is increasingly rare in a market dominated by index funds. That is especially true of this week's crew, which includes Henry Ellenbogen, chief investment officer of Durable Capital; Christopher Rossbach, CIO of London's J. Stern; Meryl Witmer, a general partner at Eagle Capital Partners; David Giroux, CIO of T. Rowe Price Investment Management, and Todd Ahlsten, CIO at Parnassus Investments. Portfolio managers all, they have impressive analytical chops and an intimate understanding of what makes companies and markets tick.
The 2026 Roundtable met on Jan. 5 in New York for a daylong discussion of the investment backdrop and the 11 panelists' latest picks. We shared two panelists' recommendations in last week's Roundtable installment, and will feature those of the remaining four next week.
We hope you enjoy this edited take on the proceedings.
Barron's : Henry, we can't wait to hear about your '26 investment ideas.
Henry Ellenbogen: The AI capex [capital expenditure] cycle has been strong, and has driven the market for the past three years. You can debate how long it will last, but it is clear at our companies that it is driving productivity. We look for companies using AI to lower costs and drive revenue, and that ideally are capturing 30% of the growth in their end markets.
We led the last private investment round in DoorDash in 2020 and know it well. Like many of the best CEOs, DoorDash co-founder CEO Tony Xu takes an appropriately long-term view of investing in his customers, employees, and business. The results aren't always linear. DoorDash stock got swept up in concerns in the fourth quarter about excessive AI spending.
DoorDash is a dominant business in its industry, and a classic scale and network-effect business. To succeed, it needs more restaurants and more customers. The food-delivery drivers, or dashers in this case, benefit from the density of both. The company has a world-class technology platform and is leveraging AI to improve revenue growth and take out costs.
What is DoorDash's market share?
Ellenbogen: DoorDash has roughly a 70% market share in the U.S. The industry has a lot of growth ahead. Many restaurants had weak food sales last year. Most of the major chains had negative same-store sales in the second half. Yet DoorDash demonstrated stable to accelerating GMV [gross merchandise value] and order growth in its core U.S. business throughout the year. We estimate that 70% of orders come from the top 20% of customers, which is really just eight million U.S. households.
DoorDash's ad business is an opportunity to drive high-margin revenue. About 1.5% of GMV is monetized through ads. We expect that to rise by many multiples, with high margins. As DoorDash has unlocked ad revenue, it has also unlocked promotions, delivering value to customers.
What is the controversy surrounding the stock? On its most recent earnings call, the company said it would invest several hundred million dollars to standardize its business on a global platform. Amazon.com did the same thing in the early 2000s. I see a lot of parallels to Amazon. Everyone focused on the costs and assumed they were defensive, but they were largely offensive. Door Dash made two overseas acquisitions, of Wolt and Deliveroo, and wanted to standardize the business on one platform from both a growth and efficiency standpoint.
We believe this investment will be completed in 12 to 15 months. Despite it, the company is going to grow organic revenue this year by nearly 20%, with operating leverage. The stock is trading for 15 times 2027 estimated Ebitda [earnings before interest, taxes, depreciation, and amortization] and at a low-20s multiple of cash flow. Our estimates assume no international earnings, but DoorDash will make a lot of money internationally. We think the stock could be worth approximately $325 to $390 a share in the next two years.
What is the AI component?
Ellenbogen: It is the platform. The CEO joined the board of Meta Platforms in 2022. He has had a front-row seat at Meta, observing how the company has used AI to rebuild its research and development process and target customers with personalized advertising. We believe that is one reason why ad revenue has been such a success. By some estimates, it is growing north of 70% annually.
Todd Ahlsten: What is the over/under bet on DoorDash's share three to five years from now?
Ellenbogen: The bet isn't that the company's share of the food-delivery business will go up, although we think it will go up slightly. More importantly, the business will grow to encompass more services, such as grocery and other retail delivery. Among the top decile of DoorDash customers, the frequency of use has increased, and not only for food delivery. This business is early in its demographic expansion.
Ahlsten: If food is going to be delivered by drone in the future, DoorDash seems to fit that profile.
Ellenbogen: Around the globe, facilities-based e-commerce companies like MercadoLibre, my next pick, are bringing down delivery times. Coupang, in Korea, is the best at this. They can get you something in six to eight hours.
Let's hear more about MercadoLibre.
Ellenbogen: I have followed the company, which has key offices in Argentina and Uruguay, since it went public in 2007. The co-founder and CEO, Marcos Galperin, who should go down in history as one of great CEOs of the past 20 years, became executive chairman this month. Ariel Szarfsztejn, who was head of the commerce division, became the new CEO. Investors shouldn't worry about this transition.
Galperin compounded wealth for MercadoLibre shareholders by 30% a year during his tenure as CEO. As we saw with Amazon and believe will be the case for Coupang and MercadoLibre, when you become the dominant facilities-based e-commerce player, you're talking about a multidecade run. David talked this morning about how richly valued Walmart and Costco Wholesale are. They have been dominant facilities-based companies for decades.
MercadoLibre operates primarily in Brazil, Mexico, and Argentina. It is seeing organic unit growth of more than 30% a year. Latin America is underpenetrated in e-commerce relative to the rest of the globe. The company started investing in fulfillment only about five or six years ago. As you improve fulfillment, you improve not only the speed of the delivery but the quality of the customer experience.
The controversy in this segment is short-term in nature.
What controversy?
Ellenbogen: Shopee, a Southeast Asian company owned by Singapore's Sea, has become more aggressive in Brazil. MercadoLibre has responded by doubling down on fulfillment and lowering fees where they overlap most with Shopee. But the market is missing the point: Both companies continue to gain share over local players and Amazon. Shopee announced just today that it is going to start raising individual seller fees across the board.
When you are the dominant e-commerce player in a region, as MercadoLibre is, there are attractive products you can layer on. The first is advertising, which is growing faster than units. Given that MercadoLibre's advertising is just 2.3% of GMV, there is a long runway for growth.
The other growth curve that excites us is the company's financial-services offerings in a region where banks have been oligarchist and underserved customers. MercadoLibre is leveraging its relationship with both merchants and customers to grow at attractive rates and attractive economics. We are private investors in Revolut, a fintech company dominating the market in Europe, and the same things that attracted us there attract us here: a common technology platform, low cost to serve customers, and a data advantage relative to incumbent banks with high cost structures.
MercadoLibre could see three to five years of strong growth just from the countries I mentioned. Then, there is potential growth in the rest of Latin America. We think organic revenue will grow by more than 20% a year in the next three years, and earnings by more than 30%. Trading at 25 to 30 times earnings, the stock could double from a recent $1,970 a share.
What is your next idea?
Ellenbogen: I like businesses that weren't born as tech companies but now use technology to improve. This requires a focused leadership team and organizational agility in change management.
I recommended XPO in the 2025 Midyear Roundtable, and will recommend it again. We have always liked the less-than-truckload trucking industry. XPO has invested in its trucks and service culture, and created the infrastructure and human capital to become a much better business. The CEO, Mario Harik, is an MIT-trained information technology engineer who rebuilt the company's core systems.
I mentioned earlier [in the morning session] that XPO had 2% fewer labor hours per shipment in the latest quarter even as shipments fell 6%. How did they do it? By enhancing physical labor and human judgment with technology tools. We believe the market is missing the operating leverage the company will get in the next economic downturn. We think the stock can trade at 25 to 30 times forward earnings on meaningfully higher earnings over the next two to three years, for an annual return of more than 20%.
I recommended RBC Bearings last year and the stock did well. I am recommending it again. We talked this morning about just how important it is to bring manufacturing back to our country, especially in critical industries such as defense and aerospace. Yet in the past 25 years, the U.S. has fallen from a 26% share of global manufacturing to 16%. If you talk to Boeing or the Defense Department, they are struggling to find quality suppliers who can deliver equipment on time. RBC Bearings makes mission-critical products. It is the sole supplier of about 70% of its products.
Such as?
Ellenbogen: The company makes products such as quiet valves that allow nuclear submarines to remain undetected. It makes key bearings in jet airplanes. About 90% of revenue comes from the U.S. The CEO has compounded wealth at an 18% annual rate since 2005.
The wind is at RBC's back. For one, Boeing and Airbus are ramping up production and have given RBC good pricing. Second, the company bought Vacco Industries in 2025 from ESCO Technologies, an exceptional deal that enhanced RBC's product offerings.
When I pitched the stock last year, RBC had an $825 million backlog. The backlog is now about $2 billion, largely reflecting growth in the defense business. The DOD is moving to in-stock from just-in-time inventory, which makes sense. As a result, we think aerospace and defense will account for 50% of RBC's cash flow by the end of the year. The market is going to realize that RBC can grow at a midteens rate. The company has added a lot of value through mergers and acquisitions, and has a clean balance sheet.
If we ever get a recovery in manufacturing, things will look even better. RBC has compounded wealth in recent years without the benefit of a pickup in the PMI [the Purchasing Managers' Index], which contracted in 36 of the past 38 months. We think the company can earn close to $19 to $20 a share in 2028 and sustain its current price/earnings multiple or earn a higher multiple. Aerospace suppliers trade at about a 20% premium to RBC's valuation.
Last, the payments industry was under pressure last year. The consumer economy is choppy, and Fiserv severely disappointed investors. My pick is Shift4 Payments, which came public in 2020. It was founded by Jared Isaacman, who was CEO until December, when he left to run NASA. Initially the company primarily serviced merchant payments for the restaurant industry. Now, 50% of revenue comes from better businesses.
One is stadiums; Shift4 provides software and payments to process retail, food and beverage, and ticketing services. Also, last year it bought Global Blue, whose payments technology facilitates tax-free shopping. Global Blue has a 70% share of that business and has been gaining share. It now contributes 25% of Shift4's revenue. The restaurant business has been growing organically, and is still about 50% of the business. The business mix has improved so much in recent years that free cash flow conversion [to Ebitda] is now 50%.
Tell us about the stock.
Ellenbogen: Despite growing in the mid-20% range last year, including acquisitions, Shift4 is trading for only 10 times our 2026 estimate of earnings per share. The company announced a billion-dollar stock buyback; it has about a $6 billion market cap. With Jared's departure, the company is going to eliminate its C-Class shares and switch to a single-class structure, which we like. We have known the new CEO, Taylor Lauber, a long time. He is excellent, and we expect the market will come to appreciate his consistent execution and the company's ability to continue to improve the asset quality.
We believe Shift4 can deliver a 25% stock return by December 2026, with no multiple expansion. If the market more correctly values its business mix, it can trade at 11 to 13 times 2027 estimated earnings, which yields a year-end price of $90 to $106, for a 40% to 60% one-year return.
Thanks, Henry. Let's move on to David.
David Giroux: We are extremely focused on risk/reward. We project that the S&P 500 will return around 6.8% on average over the next five years. My picks have an internal rate of return of more than twice that amount, and are less volatile than the market. Many have unique optionality. They all fall into the utilities, healthcare, and consumer staples sectors. I don't know whether or not we are in an AI bubble, but there have been five downturns of 10% or more in the past two years in our internal Capital Appreciation AI index, and on average these sectors have had positive returns during those downturns.
My first recommendation, Keurig Dr Pepper, sells soft drinks, premium water, energy drinks, and coffee. It has a $38 billion market cap and trades for less than 13 times 2026 expected earnings. It has a 3.3% dividend yield. We exited the stock a few years ago, and got involved again in December.
Keurig stock had negative absolute returns in each of the past three years as the Keurig coffee business stopped growing, even though the cold-beverage business grew by mid-single digits and took market share. In mid-2025 we saw a moderate sum-of-the-parts story that could lead to a $40 stock based on 2027 earnings estimates, but the stock was already in the mid-$30s.
Then, in August, Keurig announced the acquisition of JDE Peets, a low-growth European-based coffee business, for about 15 billion euros [$17.5 billion], or 13 times enterprise value to Ebitda. In addition, the company said it would split into two public companies at the end of 2026 -- a global coffee company and a mostly North American beverage business. Investors didn't like the deal and the stock sold off, costing Keurig more than $9 billion in market value. The sum-of-the-parts opportunity is now much more compelling.
What sort of upside do you see?
Giroux: The cold beverage business should be one of the best stories in staples, with mid-single-digit organic growth potential and limited currency risk. If we put a low multiple of seven or eight times Ebitda on the coffee business, and a multiple of 18 times earnings -- between that of PepsiCo and Coca-Cola -- on the beverage business, we get $34 to $36 a share by year end. With the 3% dividend yield, that implies 29% upside. Over time, there could be more upside to the beverage multiple.
We also see two areas of optionality. Keurig owns about 5% of Chobani, which was recently valued at about $20 billion. It could sell that stake to help pay down debt. The bigger source of optionality involves combining Pepsi's and Keurig's North American beverage assets into a bottling and distribution joint venture. This would drive massive route-density economics, and could drive at least $500 million in synergies for both companies. If this were to happen, it would probably be worth an incremental $5 a share for Keurig.
Ellenbogen: We are investors in Chobani, which has done the hard work to build out manufacturing and distribution, and has an exceptional CEO. If and when the company comes public, your estimate of its value may be conservative.
Giroux: T. Rowe Price is also an investor in Chobani. We agree.
Next, we are starting the mother of all generic drug cycles over the next decade. Merck's Keytruda comes off patent in 2028, Novo Nordisk's first GLP-1 drug loses patent protection in 2031, and Eli Lilly's Mounjaro loses it in the mid-2030s. This could lead to a $400 billion to $500 billion opportunity in biosimilars and generics.
There are multiple ways to play this, but I will highlight six biotech companies likely to be acquired at large premiums over the next one to three years. Large pharma needs to do a lot of deals to combat all the revenue headwinds in the next decade. Big Pharma feels more certainty on regulatory policy, and Lilly is going to generate a ridiculous amount of free cash flow in the next five to 10 years. This is the perfect backdrop for biotech takeovers, and multiple bidders have shown up in recent deals.
These six companies are Cytokinetics, which I recommended in the midyear Roundtable, Arcellx, Apogee Therapeutics, Vaxcyte, Dyne Therapeutics, and BioNTech.
My next idea is Starbucks, which feels a lot like General Electric. It is an iconic American company that was poorly run for a long time. Now that an A-plus CEO has been brought in, the odds of a turnaround are high.
Starbucks made a lot of bad decisions. It commoditized the experience for customers and took labor out of the stores during peak periods. It aggressively discounted to drive traffic, the wrong thing to do with a premium product. It opened too many new stores on the West Coast and in the Northeast, and too few in the Midwest and Southeast, and so on. Brian Niccol, the new CEO, is in the process of fixing all this.
How would you assess the improvements so far?
Giroux: He is adding labor at peak times, and driving down order completion times. Store-level turnover is now at record lows. Simple things like smiling at customers and handing them drinks improves the perception of value. There has been menu innovation around protein and foam, with food to come.
Starbucks won't turn around overnight, but there is a strong case to be made that comparable-store sales could return to 3% to 4% growth. Margins peaked at 17% in fiscal 2019 and are now 10%. Niccol and his team have taken the painful step of ending aggressive promotions, which should enhance margins. There is a strong case for margins to exceed the prior peak. There are still a lot of questions, but Starbucks has a real shot at earning close to $6 a share by 2031, our time horizon, with an 18.5% operating margin. That implies a stock price of $150 to $180 a share, up from $84 now, plus a 2.8% dividend yield.
In the midyear Roundtable, I talked about how attractive utilities were relative to staples stocks in 2025. Utility stocks returned a total 16%, compared with 4% for staples. We believe the growth rate of utility earnings will surpass that of staples by three percentage points a year over the next five years. Utilities were under pressure late last year partly due to affordability concerns. One area where the affordability issue was particularly acute was in the PJM power grid region, which includes New Jersey, Maryland, Pennsylvania, and Illinois, and some other states These are unregulated power markets where the cost of generation is determined by supply and demand as opposed to a predetermined return on equity.
This was fine until demand took off, driven by data-center demand. That drove materially higher power prices for customers throughout the region, and no surprise, nobody is adding capacity to bring prices back down. As a general rule, unregulated power markets are bad for consumers. They rely on the false premise that generators will be able to supply power at a lower cost than regulated utilities, which have a much lower cost of capital.
We take it your picks are regulated utilities.
Giroux: Yes. We are investors in NiSource, which operates in Indiana, a regulated market. The state has a pro-business governor, and its utility bills were 12.5% below the national average per kilowatt-hour as of year-end 2024. It also has an innovative utility commission that created a structure allowing data-center development to occur at a faster pace while protecting rate payers from abandonment risk. Amazon is building a large data-center project that hopefully will save Indiana rate payers about $1 billion in the form of lower bills for the next 15 years. That is about $7 a month for residential customers. This Amazon agreement will essentially increase NiSource's earnings-per-share growth rate from 8% to 9.5%. It is likely that we will see an additional two to three gigawatts of capacity come into NiSource's territory over time. That will likely drive an additional $1 billion of savings for customers and create more jobs and local tax revenue.
This means NiSource will probably end up growing earnings per share by close to 11% from 2026 to 2034. The company has a dividend yield of 2.6%, so that's a 13% to 14% total-return algorithm. The stock sells for 20 times earnings.
CenterPoint Energy, based in Houston, is also attractive. Earnings per share are growing 9% a year, and the stock has a low-double-digit total return algorithm. The company is in the fastest-growing region of the country. It is trading for less than 20 times earnings. CenterPoint is unique among utilities in that it doesn't have any rate cases through 2028. Power prices in Texas are around 25% below the national average, which further reduces affordability concerns.
My last recommendation is Becton Dickinson, which I have recommended here before. The stock has been disappointing over the past five years. Seven things killed Becton in that time.
Only seven?
Giroux: Alaris [an infusion pump system] was recalled in early 2020. Then the Covid pandemic hit. Then we had Chinese volume-based procurement [VBP; i.e., centralized procurement of pharmaceuticals medical products drove down unit costs], and a downturn in life-sciences tools stocks. Then, tariffs: The company was one of the most impacted by tariffs in the S&P 500. No. 6 was elevated litigation payments, which reduced Becton's free cash flow and impeded its ability to buy back stock. And finally, vaccine revenue declined in its pharmaceuticals systems business.
The Alaris recall and Covid are now behind us. The China VBP headwind should be behind us by the end of 2026. China peaked at 8% of Becton's revenue and will be less than 4% in 2027. This has been a massive headwind to organic growth. The company is in the process of merging its life-sciences business with Waters at a multiple of 20 times Ebitda. Tariffs are fully reflected in 2026 estimates, and Becton is making good progress in reducing that headwind. Vaccine sales in the pharmaceutical systems business will fall to 2% of total sales in 2026 and '27, and that business probably has more upside than downside now. Finally, free cash flow conversion should increase to more than 90% in 2027. So, almost everything that hurt Becton in the past five years is now either behind it or has vastly diminished as a risk.
In February, Becton Dickinson will merge its Biosciences & Diagnostic Solutions business with Waters via a Reverse Morris Trust $(RMT)$. Adjusting for that transaction, the company's stock is worth about $140, or less than 10 times fiscal 2027 earnings per share. The dividend yield will be about 3%. Becton will get a $4 billion dividend from Waters and use it to buy back 5% to 10% of its shares.
Becton also has a pharma systems business that has five to six times the share of the No. 2 player, with $2.6 billion in sales and $900 million to $1 billion in Ebitda in 2027. The biologics business is the most attractive part of this business and will represent about 60% of the pharmaceutical systems revenue mix in 2027, and closer to 70% by 2030. This business should be a huge winner in biosimilar GLP-1s in the coming decade. Moreover, the vaccines business will be down to a low- to midteens percent of revenue in 2027.
Multiples in the pharma systems space are in the high teens to mid-20s based on enterprise value to Ebitda. It is an area where consolidation makes a lot of sense. There is optionality in the form of a spinoff or RMT worth about $20 billion to $25 billion. Remove that business, and the rest of Becton would be trading for six or seven times earnings per share.
What is nice here is that the highest-margin parts of Becton Dickinson are growing the fastest, which helps support margin expansion. Maybe something will punch me in the gut again, but the setup feels good.
Scott Black: David, Becton Dickinson has faced litigation for its hernia mesh. The company settled most of its U.S. lawsuits. Is the situation still overhanging the stock?
Giroux: It is a great question. It isn't an overhang after 2026. Cash flow conversion has been 70% to 80%, much higher than competitors, despite some legacy litigation payments. By 2027 it should be closer to 90%, and if the company were to divest the pharmaceutical systems business, the remainder would be closer to 100%.
If Becton keeps the pharma systems business and trades for 10 times earnings, it can reduce share count by 4%-plus a year, even with tuck-in acquisitions, and achieve a 12% growth rate in earnings per share. With a 3% dividend yield, that's a midteens algorithm. If it exits pharma and trades at 10 times earnings, earnings will grow at about 11%, for a 14% algorithm. Management and the board are all on board to aggressively buy back stock, given how cheap the stock is today.
Thanks, David. Meryl, your turn at bat.
Meryl Witmer: I am recommending three companies that recently made acquisitions we like. I put them all in the "special situations" category.
Cactus is trading for $47 and has 80 million shares outstanding. It supplies the oil-and-gas industry and has two segments: pressure control and spoolable technologies. The pressure control segment manufactures wellhead systems, the vital piece of equipment at the surface of an oil well that supports the drilling and production equipment and controls the flow of oil and gas, preventing leaks and blowouts. Cactus' design is viewed as safer and better than competitors.
What is Cactus' market share?
Witmer: Three years ago the company said publicly it was 43%, and will only say it is higher now.
The spoolable tech segment was acquired three years ago. It makes a fantastic product called Flexsteel, a spoolable pipe that combines the strength of steel with the corrosion resistance of high-density polyethylene, or HDPE. It offers a cost-effective alternative to traditional welded pipe and is ideal for carrying oil and gas, water, and other substances needing high pressure and corrosion resistance. The company delivers long lengths of pipe on wheels, from 600 feet to one mile, depending on the width of the pipe. Deployment is really fast, and time is money in oil fields.
Mario Gabelli: I know. I watch Landman.
Witmer: This pipe is particularly useful with sour crude, which eats up traditional steel pipe and has to be replaced regularly. The product is well penetrated in the oil fields in the U.S., but not internationally. Nor is it well penetrated in midstream [transmission and storage] operations, because each project requires individual regulatory approval. It is possible broad approval could be given, which would be a plus.
Last week Cactus acquired 65% of Baker Hughes' wellhead business for $345 million in cash, and it has the right to buy the rest. Cactus is basically debt free; it runs a balance sheet the way I like a balance sheet run. About 85% of the Baker Hughes business' revenue comes from the Middle East. The business lost market share over the years, and Cactus will do a great job of cutting costs and regaining share.
Pro forma, accounting for the acquisition, and assuming a normalized environment and only some cuts at the Baker Hughes unit, Cactus should generate $4 a share in free cash flow within a few years and have about $8 a share in net cash on the balance sheet in 2028. There is real upside, however, if the Baker Hughes business grows market share. Baker Hughes has relationships with the national oil companies in the Middle East, giving Flexsteel an entrée to grow dramatically over time. It is perfect for the sour oil produced there, and is just beginning to be sold there.
Cactus could earn far more than $4 a share in the future with good execution. Venezuela has very sour oil, and its pipelines are in bad shape, so Flexsteel could be laid there. That is a longer-term opportunity.
What are the risks to the Cactus story?
Witmer: The caveat is that the oil business is volatile, and I haven't assumed a pickup in wells drilled from current mid-to-low levels, but they also could go lower. That said, we view Cactus as a high-quality free-cash-flow machine with an excellent management team and differentiated products, whose stock is at a good price today, with an option for growth in the business.
My next recommendation, Allison Transmission Holdings, is trading for about $98 a share. There are 85 million shares outstanding for an $8 billion market cap, and $2.4 billion of debt, or $4.4 billion after the latest acquisition.
Gabelli: They bought a business from Dana.
Witmer: Yes, they acquired Dana's off-highway business last week. It is another undermanaged subsidiary. Allison is the largest global manufacturer of medium- and heavy-duty fully automatic transmissions in class six, seven, and eight trucks. It has a roughly 75% market share, mid-30% Ebitda margins, and pretax returns on capital in the mid-20% range. On highways, you'll find its products in trucks used for distribution, garbage collection, construction, buses, motor homes, and more. It also has a nice defense business.
Allison was originally part of General Motors, and was sold to private equity owners in 2007. It went public in 2012 with 181 million shares. The company has since repurchased 65% of the shares outstanding, while growing the business and lowering leverage from 3.5 to two times Ebitda in 2025.
The Dana business provides powertrain components in construction, forestry, agriculture, and other sorts of vehicles. The deal adds a strong complementary business and provides Allison with a great international manufacturing footprint, which will provide avenues of growth for the base business. The acquisition has the potential to be transformative. Allison is paying $2.7 billion, and after an estimated $120 million in cost synergies, and we estimate Ebitda of $520 million. We think Allison will blow through the cost synergies, and get revenue synergies.
Allison has less than a 5% market share outside North America. Management is really excited about the operations in India, where Dana has 4,000 employees and five manufacturing plants. We got interested in the stock when we saw Allison's chief operating officer purchase shares in the open market.
Allison has been a great capital allocator beyond buybacks. The combined company should generate at least $11 to $12 of earnings per share in 2027 or 2028, up from an estimated $8 a share pro forma in 2025. We think the stock could trade 50% higher within a couple of years.
What is your third pick?
Witmer: Coats Group, which I recommended in the midyear Roundtable, has a market cap of 1.6 billion British pounds sterling [$2.2 billion]. It is the global leader in producing premium threads for apparel, footwear, and handbags. That may sound low-tech, but it is one of the most important components in end products. Coats customers need strength, consistent color, quick replenishment, and the ability to scale around the world. Thread is a small part of the cost of products, but the quality is paramount.
Like Allison and Cactus, Coats is a cash machine that recently completed an acquisition. It bought OrthoLite in October. Since the acquisition, the CEO, David Paja, bought a nice chunk of stock personally. We are excited about the acquisition, whose main business is making open-cell foam insoles. It has about a 36% market share.
OrthoLite enhances the value of Coats, which was already supplying the athletic-shoe market with thread and rigid components used in the heel and toe box. OrthoLite has some technologies that may become additive to Coats' business. The first is carbon fiber insoles. The company claims that the technology OrthoLite has developed is superior to existing carbon fiber insoles in offering support and enhancing athletic performance. Many athletes already buy carbon fiber insoles for $25 to $150 a pair. These inserts would add about $8 to a pair of sneakers
OrthoLite also makes Cirql branded midsoles, which are biodegradable and made with 30% recycled content. There are different buyers for the upper and lower parts of sneakers, and Coats has relationships with both, which should be helpful in introducing Cirql to the brands. With no contribution from the new OrthoLite products, Coats could earn nine pence [12 cents] in 2027 and see 10 pence in free cash flow. We think it deserves a price/earnings multiple of 15, and can see it trading at 140 to 150 pence in a few years, up from 84 pence recently. If the new products add to the growth rate, it could transform the valuation.
Thanks, Meryl. Christopher, are you ready for your close-up?
Christopher Rossbach: Yes. First, let me touch briefly on our investing approach. Stern is an independent asset manager based in London, with offices in New York, Zurich, and Malta. I co-founded the business with Jerome Stern in 2012 and manage our flagship World Stars Global Equity Strategy, a concentrated portfolio of 20 to 30 stocks that we own for the long term. Annual turnover is about 10% to 15%. The World Stars Global Equity Strategy is available through funds in the U.S. and Europe through separate managed accounts. About 20% of the money is from the Stern family, partners, and employees, so we are aligned with our investors.
To us, quality is a necessary condition. We look for a sustainable competitive position in a good and growing industry, a management team with a track record of value creation, and a balance sheet strong enough to weather almost any adversity. This definition typically leads us to technology, consumer, and healthcare companies, and certain types of industrials.
We believe AI will transform how we live and work. We don't yet have the computing capacity, energy, applications, and data to realize its potential, but we will. Nvidia is our largest holding, and we also like Alphabet, Amazon, and Meta Platforms. Valuations for these companies are still reasonable. But as a London-based money manager, I want to talk about two non-U.S. tech companies and stocks.
SAP is listed primarily in Germany. It is one of the largest companies in Europe, with a market cap of $280 billion, and employs more than 110,000 people globally. It is on track to generate almost 37 billion euros [$43 billion] of revenue this year, up about 10% from 2024. SAP's cloud business, growing about 25% a year, now represents more than half of revenue.
SAP is the dominant global provider of enterprise resource planning, or ERP, software, which is deeply embedded in its customers' mission-critical operations, in particular in finance. Switching costs are extremely high, and customer retention is strong. The model has shifted from a license- and seat-based model to one that is cloud-based. That has increased revenue visibility and recurring revenue. SAP's software is one reason why global companies have been able to generate high returns with expanding margins.
AI will be a key driver for SAP. There is a significant opportunity to embed it directly into core enterprise workflows. This means SAP can train AI models on high-quality business data and processes, and enable tangible productivity gains and returns on investment. As its use of AI continues to scale, SAP can increase margins by a percentage point annually, supporting earnings growth in excess of 15% and meeting the rule of 40.
What is the rule of 40?
Rossbach: Revenue growth plus operating margins equal 40%.
We expect SAP to generate EUR8 billion of free cash flow this year, rising to EUR9.4 billion next year. The shares have dropped back recently because of macro uncertainty, concerns around tariffs, and broader weakness in software stocks as companies have been delaying investment decisions, but we expect things to improve as we move into 2026.
The selloff brought the multiple down to around 30 times 2026 estimated earnings. SAP is now trading in line with or at a discount to some of its large U.S. software peers such as Microsoft, ServiceNow, and Workday. It is attractively valued with a strong franchise, a growth avenue, and good prospects for the next three to five years.
ASML Holding is Europe's largest company, with a market cap of about $470 billion. It is headquartered in the Netherlands and has about 44,000 employees, half of whom are engineers. It is expected to generate EUR32.5 billion of revenue for 2025. ASML is the sole supplier of extreme ultraviolet lithography tools, or EUV, for leading-edge chip manufacturing. Demand is supported not only by AI-related investment but also secular growth in compute intensity across industries.
The most advanced high-NA [numerical aperture] EUV machines sell for more than $350 million per unit, and EUV contributes about 35% of revenue. Deep UV lithography systems, used in high-volume manufacturing, account for about 38%. Other business divisions include metrology and inspection, and refurbishment and servicing.
The semiconductor capital equipment business is cyclical, and not something we usually like. There have been inventory corrections, geopolitical concerns, and uncertainty around end-market demand. There are also export restrictions to China. On the other hand, AI-related demand is a positive driver. Demand from memory customers has increased as AI workloads increase. Advanced-node logic chips are also supported by AI-driven investment.
China currently accounts for 40% of ASML's revenue. The company has also seen strong demand from the U.S., Taiwan, South Korea, and Europe, and new fab construction that is taking place.
What is the earnings profile?
Rossbach: ASML has a substantial order backlog, which provides visibility for 2026 revenue. The stock is trading for 35 times 2026 estimated earnings -- a premium to the market and to U.S. semiconductor equipment peers, but well below historical levels. ASML can compound earnings at 18% over the next three to five years. We see a sizable opportunity.
Meryl Witmer: What do you make of press reports that China is copying technology?
Rossbach: Global competition in technology is a fact that companies have to deal with. It is particularly acute in the semiconductor space. Because technology can be copied, companies have to stay ahead of the game. But it is interesting to see that the race for computing capacity, which started with trade barriers and restrictions, is now at a point where the Trump administration is talking with companies about revenue shares on products sold to China.
Next, I want to talk about some consumer products companies. The impact of the Covid pandemic was massive and devastating, but we got through it. Sitting together at this Roundtable was something we couldn't take for granted in March 2020. It is a testament to science and human innovation that we can now sit here and try to understand what happened. Initially, many consumers were paid to stay home. When economies reopened, they spent a lot of money on experiences and services, and inflation and interest rates went up. Consumer products companies, from the largest to the smallest, suffered the consequences.
Nestlé, based in Switzerland, is the largest food company in the world, with a $255 billion market cap. It has one of the strongest brand portfolios in the food and beverage industry in coffee, pet care, infant nutrition, and more. It has a unique portfolio of brands in high-growth categories.
Nestlé historically was able to deliver mid-single-digit top-line growth and steady profitability improvements because of its presence in these categories and operational excellence. But it was hit by Covid-related issues. The previous CEO said that when inflation increased, the cost pressures on Nestlé were second only to the oil shock in the 1970s. They impacted its ability to invest in innovation, advertising, and promotion. Product portfolios grew stale at many consumer-products companies because there wasn't much money to invest, or markets in which to invest.
Nestlé decided to replace its CEO in August 2024. We disagreed with that move. A company insider took over and promised to reignite volume growth through investments in innovation and marketing, which made sense postpandemic. However, he was fired a year later due to improper behavior, which raised issues around governance. Management, as I mentioned, is one of our quality criteria. We engaged with the company, voted against the election of the chairman, and finally said publicly that the chairman, Paul Bulcke, should step back and allow his designated successor, Pablo Isla, to take charge. Isla is the former CEO of Inditex, another of Europe's leading companies, and the first outside chair that Nestlé has had in decades, if ever.
What happened next?
Isla became chair on Oct. 1 following the appointment of a new CEO, Philipp Navratil. The CEO has a strong reputation, stemming from his work in Latin America and with the coffee business. He is trying to challenge Nestlé's culture, and announced a plan to cut 16,000 jobs. We were encouraged when the company posted 4.3% organic growth in the third quarter, which included 1.5% volume growth. We see a path to return to mid-single-digit growth and 17%-plus operating margins.
Nestlé also has levers it can pull in terms of capital allocation. It is reviewing its vitamin business, where there are opportunities to sell some assets and focus on the premium parts. There are also opportunities for disposals in the U.S. frozen foods business. We also think Nestlé should do a deal involving its 20% stake in L'Oréal, which is worth about EUR40 billion, or roughly 20% of the market cap. The company could sell all or part of that stake, and use the money to buy back shares and pay back debt. Nestlé is attractively valued at 16.9 times 2026 estimated earnings. It has a 4% dividend yield.
Giroux: Nestlé had one of the fastest organic growth rates in food for a long time. But in the past 15 years, earnings-per-share growth has been less than 3%. The company earned less in 2025 than it did in 2019. Revenue was less than in calendar 2012. Why will the next 10 years look different from the past 15?
Rossbach: It depends what period you look at, and whether you use constant currency or local currency. The company reports in Swiss francs and has been hit by the depreciation of the dollar. In constant currency, things don't look nearly as bad. Also, Nestlé has been able to generate 12% compound returns, in the aggregate, over many decades. But there are periods when it has flatlined, and this is one, partly due to the distortions of the pandemic. That is what creates the opportunity.
Many packaged-foods stocks were hurt by the pandemic and the rise of GLP-1s. Do others have a good chance to recover, too?
Rossbach: Food is a difficult industry. What we like about Nestlé are its higher-growth categories. Many U.S. food companies have lower growth, or are subject to more competition and concerns about nutrition and health than Nestlé. We think you want to be in higher-growth, higher-margin, less-impacted categories.
LVMH Moët Hennessy Louis Vuitton is the world's largest maker of luxury goods, with a market cap of $380 billion. It had a long growth trajectory but now is facing cyclical headwinds as consumers have been spending less on goods and more on experiences postpandemic, and as they have been squeezed by inflation. Bernard Arnault, the chairman and CEO, also knows that experiences are important. He has developed a world-class luxury hotel and travel business within LVMH that is bolstering the underlying business.
LVMH is at the early stages of a cyclical recovery. There is a new focus on product innovation and retail execution. New products reached the stores in November, and consumer response has been positive. The stores in Miami's design district were packed with people carrying shopping bags when I was there over New Year's. We even see the beginnings of a turnaround in the company's business in mainland China, which grew by mid- to high-single digits in the latest quarter.
LVMH trades at a 50% discount to our discounted cash flow valuation. It can generate 12% growth in earnings per share in the next three to five years. The stock is trading for 28.2 times 2026 estimated earnings, going to 23.2 times 2027 estimates.
Last, Nike has a $97 billion market cap. It is the global leader in athletic footwear and apparel. Its marketing budget of $5 billion is larger than most competitors' sales. It generates about 43% of sales in the U.S. Nike relied excessively on its classic franchises and also shifted much of its business to the direct-to-consumer channel, allowing other brands to take advantage of the vacated shelf space. The CEO, Elliott Hill, is a 30-year veteran of the company. He has been at the helm for 15 months.
Nike is innovating in the running space, and achieved more than 20% revenue growth in the past two quarters in its Pegasus and Vomero franchises. Nike has issues in China in terms of the macro backdrop and competition, but there is also opportunity. It was impacted by tariffs, but that is a one-off hit. The company is starting to deliver on innovation and will benefit from increased brand exposure with the World Cup hosted in the U.S., Canada, and Mexico this year.
The company has a May 31 fiscal year end. This fiscal year is depressed, but we see a strong turnaround. The stock trades at 26 times fiscal-2027 estimated earnings, going to 21.2 times fiscal-2028 earnings.
Thank you, Chris. Todd, what have you brought us this year?
Ahlsten: I have six stocks to recommend, all great American companies. All of them underperformed the S&P 500 last year. The first two are in the medical device and technology area. Stryker trades for $348 a share, or 23 times earnings. It has a $133 billion market cap. We have a three-year price target of $555, which implies a 17% annual internal rate of return.
Roughly 40% of Stryker's sales are in the orthopedics area, and 60% are in medical-surgical, or med-surg. Its products are used in hip, knee, and spine surgery, and to address strokes and neurological issues. This is a sweet spot demographically. Stryker is decentralized. It has 22 business units, so no single unit presents too much risk. That structure keeps the company close to surgeons and hospitals. Its products incorporate robotics and AI. That, plus its merger-and-acquisition strategy, give Stryker a wide moat.
We think the top line can grow 8% organically, versus 6% growth for the broader market. Earnings could grow by double digits. In the past decade, Stryker has outgrown its peers by 2.5 percentage points a year, so it is a share gainer.
Robotics and 3-D implants are improving patient outcomes. Mako SmartRobotics, which Stryker bought in 2013, is a robotic-assisted joint-replacement program. It is now in more than 1,000 hospitals, and once installed, provides an annuity stream, giving Stryker recurring revenue and pricing power. Because of Mako, Stryker has gained 8.5 percentage points of share in knee surgeries, and 3.5 points in hips.
About 75% of Stryker's revenue comes from consumables, and 25% is tied to equipment such as Mako. This is an anti-fragile business model because hospitals make a lot of money on surgeries involving Stryker's products. Stryker's stock was roughly flat last year, but given the company's growth profile, we think it has substantial upside.
My next pick, Boston Scientific, is selling for $95 a share. It has a $140 billion market cap, and trades for 27 times this year's expected earnings. Our three-year price target is $172 based on a multiple of 30 times 2029 expected earnings of $5.73 a share. Boston Scientific will have an operating margin of at least 29% in 2026 on its $22.5 billion in sales. We like high-margin companies. Top-line growth is about 15%, and bottom-line growth, 20%.
What is driving that growth?
Ahlsten: Two-thirds of the business revolves around cardiovascular treatments, and one-third is med-surg. CEO Mike Mahoney came in 15 years ago and transformed the company, moving it into faster-growing areas, making it more innovative, and widening its moat.
Boston Scientific is at the leading edge of technological advancement. I'll highlight two attractive cardiovascular franchises related to AFib [atrial fibrillation], which causes stroke risk. Boston's Farapulse is rapidly gaining market share; it is a step change in AFib treatment. Farapulse is a catheter ablation technology using PFA, or pulsed field ablation. It finds the misfiring heart tissue and zaps the electrical nodes causing an irregular heartbeat. It is nonthermal, and safer than older therapies. So far, it is used in only 40% of AFib procedures, but we think it will reach 50%, on its way to 80% as more doctors are trained.
This technology improves outcomes and increases hospital throughput, allowing doctors to do more procedures. Boston Scientific has the first-mover advantage, and we expect the business to grow at well over 20% a year for the next three years.
Gabelli: What is the TAM [total addressable market]?
Ahlsten: About 10 million patients in the U.S. have AFib, and eight million are at higher risk of a stroke. The sister product to Farapulse is called Watchman. It is a device that reduces stroke risk for AFib patients by sealing the left atrial appendage, which is where stroke risk starts. It can cut stroke risk by more than 65% and, for some people, reduce the need for blood thinners. Watchman is another product growing well over 20%. Right now about 600,000 patients worldwide have been treated with Watchman.
Beyond these products, which account for 25% of sales, Boston's product portfolio is growing annual sales at a mid- to upper-single-digit rate. The company has new products, like drug-coated balloons, and new catheters that use sound waves to crack the calcium inside arteries. [Boston Scientific announced on Jan. 15 that it is buying Penumbra, which makes devices used in vascular procedures, for $14.5 billion. Ahlsten said in an email, "We like this acquisition because it helps Boston expand into rapidly growing markets with large unmet needs (treating blood clots and aneurysms), giving us more confidence in the company's ability to sustain double-digit growth."]
Why did the stock underperform in 2025?
Ahlsten: The company was reporting good earnings and gaining market share. It just didn't get attention, but that is an opportunity. Stryker and Boston Scientific are trading at the low end of their valuation ranges. They are both set up for good years.
What is your next idea?
Ahlsten: My highest-conviction long-term investment is Deere, which I started pitching in 2020. It was $172 a share then, and is $467 now. The best is yet to come. Deere can grow earnings about 25% a year from 2026 to 2030.
As we know, there has been a down cycle in agricultural profits and prices, partly due to tariffs, which hurt the farming sector. This is the time to double down on the stock. Earnings per share could go from $17 this year to more than $40 by the end of decade. The potent combination of a cyclical recovery and the adoption of precision agriculture and AI can drive that.
Deere now has 500 million acres of data in its operating system, double the amount of five years ago. Precision ag revenue has likely doubled from three years ago, to approximately $6 billion. The monetization flywheel is truly impressive. The company has 150 million highly engaged acres, or acres that utilize Deere technology for multiple production steps, and is generating about $40 of precision ag revenue per highly engaged acre. Over time, farmers could see about $72 of incremental profit per acre in the U.S., and $115 in Brazil, by adopting Deere's technology, enabling Deere to gain share through greater productivity. It expects highly engaged acres to double again by 2030.
Deere is spending $2.3 billion on annual research and development, more than twice its nearest competitor. It has more than 10 trillion measurements on its data platform across geographies, soil types, weather conditions, and such. This is nonreplicable. Undocumented growing seasons are literally lost forever, so Deere has a time-based advantage its competitors can't recreate. It is one of the widest-moat businesses in the world. Deere is a stock to own through the end of the decade, when it could trade for $1,000 a share. At 20 times earnings, it could reach $700 to $800 in the next few years.
Home Depot is my next idea. Higher interest rates, home affordability issues, and labor constraints are all headwinds that create opportunity. The stock is trading for $346, or 23 times forward earnings, and yields 2.5%. You're paying roughly a market multiple on trough earnings for one of the better companies in the world. We have a base price target of $463 in three years, which implies a 10% internal rate of return. That target is based on a multiple of 25 times 2028 estimated earnings of $18.50 a share. If the housing market turns up sooner, our bullish target would be $533, or 26 times $20.50 in earnings.
That is a big "if."
Ahlsten: Home Depot is one of the highest-quality large-cap ways to express a recovery in U.S. housing. The turnover of homes would be the biggest driver for Home Depot, and right now it is unsustainably low. Home sales divided by housing stock is down to 2.9%, a multidecade low. A typical turnover rate is around 4%. If mortgage rates go below 6%, turnover will increase and the stock will rise.
Quarterly home-improvement spending was $893 per occupied housing unit in the third quarter of 2025, down from $1,148 in 2021. We are 50 months into the downturn. The longest downturn on record was 67 months, from 2006 to 2011. We expect a change in the next couple of years.
Near-term margins are only 13%, down from a typical 14% to 15%. The company has been investing in the professional contractor market, and made two acquisitions in the past few years. Those deals and a cyclical recovery could return margins to 15% over several years.
Home Depot is also using AI in its business to help digitize the customer experience and improve its inventory stocking, and for other purposes. It is also investing in robotics. It has better scale and store productivity than rival Lowe's, and more pro customers. Housing turnover needs to improve at some point, and if mortgage rates go below 6%, the stock will go higher.
Synopsys is the only tech name I'm pitching today. It is the software backbone of the AI semiconductor arms race. The stock is trading for $480 a share, or 28 times forward earnings. Our price target is $750 in two years, or 30 times $25 a share in expected earnings.
How will it get there?
Ahlsten: Synopsys is one of the two dominant electronic design automation, or EDA, software companies. It supplies mission-critical software to design, verify, and manufacture advanced semiconductors. Advanced AI chips now have 100 billion to 200 billion transistors, and could have a trillion by the end of the decade. Design complexity is going up 30 to 40 times. As that happens, Synposys is getting increasingly embedded in its customer workloads.
Last year Snopsys bought Ansys, a physical simulation company. Think about the integration of chips, software, and physical systems; the combined capability is compelling. EDA spend is 7% to 8% of semiconductor R&D spending today, and will rise to 10% to 12% longer term.
So, why is Synopsys on sale? The stock dropped 30% in September. There were a few issues, including export-license restrictions from China around the middle of the year. As a result, the company's China business declined from 16% of revenue growing by 20%, to 12% of revenue declining by 18%. Export restrictions caused massive whiplash. Also, Intel, a large Synopsys customer, scaled back and delayed its foundry build-out road map. Third, Synopsys sells intellectual property to chip companies, and the business is moving from off-the-shelf to more custom designs, which is straining engineering capacity and forcing a transition to a new royalty-based business model.
Can the business still thrive without China?
Ahlsten: The China business will be flat to down this year, and hopefully return to growth in 2027. If not, it is only 12% of the total, and Synopsys can still grow by double digits in the longer term.
My last great American company is Waste Management. The stock is trading for $218 a share, or 26 times forward earnings. We have a two-year target of $297, or 27 times fiscal 2028 estimated earnings of $10.96 a share, implying a 12% annual return. The dividend yield is 1.5%. Cash flow is accelerating, and we think the stock could earn a higher P/E multiple.
Waste Management is the most strategically advantaged company in North American waste disposal. Some 60% of U.S. landfill capacity is held by the top three players, up from 38% in 2008. Regulatory and permitting constraints make new landfills uneconomic. Conversely, they make Waste Management's assets scarcer and more valuable. Waste Management has a more-than-50% market share within a 50-mile radius of its landfills, which gives it cost advantages. This is a defensive investment; if the market has a hiccup this year, it is in a strong place.
The company also has secular tailwinds including recycling automation, renewable natural gas, and regulated medical waste. John Rogers picked Stericycle, a leading medical waste company, at the 2024 Roundtable. It was a timely call. Waste Management bought Stericycle that year for $7.2 billion. The deal supports the company's moat and provides durable organic growth. Waste Management will also realize $250 million in synergies from the acquisition over a three-year period. Its investment in recycling automation has just about peaked, which will boost free cash flow this year.
Waste Management has invested in AI-enabled robotic sorting systems for recycling, which can reduce the labor cost per ton by 30% to 35% at automated recycling facilities. Ebitda margins at those facilities are double those at legacy operations. Also, industry consolidation has led to pricing power. The company's recycling and renewable natural-gas businesses are expected to be around 10% of total Ebitda at full run--rate, with upside into a low--teens percentage.
Given these tailwinds, we see an inflection this year in free cash flow, and potential upside in capital returns and the dividend. If industrial volumes pick up, Waste Management will benefit. And if the housing market picks up, that would be a kicker.
Thanks, Todd.
Write to Lauren R. Rublin at lauren.rublin@barrons.com
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January 16, 2026 12:31 ET (17:31 GMT)
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