Beyond the Santa Claus Rally-5 Quality Stocks to Buy in 2026

Investors who were hoping for a Santa Claus rally have been disappointed. After a promising move higher on Dec. 26, markets were down heading into 2026. But it’s a good reminder that investing, particularly long-term investing, isn’t about what happens during one period of time.

The setup for stocks continues to look bullish in 2026. First, the major indexes are near record highs despite investors having to navigate a cloudy macroeconomic picture. Second, while many stocks, particularly in the technology sector, are objectively overvalued, Morningstar’s December 2025 fair-value work shows that U.S. equities are trading at about a 3% discount to intrinsic value.

That’s because in the last two months of 2025, analyst targets have risen faster than the underlying stock’s price. That’s likely due to expectations of strong earnings in 2026.

That should be good news for high-quality, large-cap stocks to carry momentum, including a potential rerating in 2026. Here are five stocks that fit this profile.

Microsoft Is Likely to Return to Its Market Leadership Position

Microsoft Corp. (NASDAQ: MSFT) finished 2025 up 14.7%. That’s a great year for most stocks. However, it was slightly below the gain in the S&P 500, which put Microsoft in the rare position of being a market laggard.

The concern is that Microsoft is committing billions into AI infrastructure at a time when investors are becoming skeptical about when, or if, that investment will pay off. However, the capital expenditure (CapEx) is well supported by the company’s balance sheet.

Plus, Microsoft has built a strong moat that makes the cost of switching prohibitive for many of its customers. Analysts believe that will continue to be the case in 2026 with forecasted earnings growth of over 12%.

After a 6.9% slide in the last quarter of 2025, MSFT stock is now trading about 30% below its consensus price target. That’s a buyable dip for many buy-and-hold investors and may create an opportunity for traders who want to take a long position in MSFT stock for 2026.

Lower Interest Rates Will Support JPMorgan’s Best of Breed Status

Throughout the macroeconomic twists and turns in the last five years, JPMorgan Chase & Co. (NYSE: JPM) has shown why it’s considered best of breed among finance stocks. The stock finished 2025 with a 34% gain and has delivered a total return of over 188% in the last five years.

The catalyst for JPM stock in 2026 will likely come from lower interest rates, which will create a healthier yield curve and a more favorable credit and lending outlook. Analysts seem to agree. Price targets are being raised on expectations of a January rate cut, which will help alleviate recession concerns, even as inflation may persist.

However, even if the Federal Reserve decides to pause its rate-cutting campaign, JPMorgan has a fortress balance sheet that makes it one of the safest bank stocks to own.

Analysts are forecasting around 7.2% earnings growth in 2026. That’s slightly lower than the approximate 12% average earnings growth over the last five years. However, that may be due to a range of outcomes being in play for the first quarter.

Deere Will Give Investors a Way to Play a Normalizing Economic Cycle

Deere & Company (NYSE: DE) is a blue-chip stock that gives investors exposure to an improved macro backdrop. Over the last five years, Deere has grown earnings at a high single‑digit annual rate, even as agricultural and construction equipment demand has been soft.

DE stock was up 9.9% in 2025, down sharply from its 16.9% average over the last five years. But analysts expect EPS growth of around 14% in 2026, which could mean that the $522 consensus price target as of Jan. 1, may be too low. However, that will depend on an environment where farmers and contractors continue to have purchasing power.

From a trading standpoint, DE’s pullbacks toward key support zones could offer attractive entry points for 2026 positions. Investors may look to accumulate shares on weakness ahead of seasonal ordering cycles, targeting upside as the market prices in a turn in the CapEx and industrial demand cycle.

Costco Offers Premium Defense With Steady Growth

Costco Wholesale Co. (NASDAQ: COST) continues to play a unique role in portfolios as a “premium defensive” name that still delivers mid‑teens earnings growth. Over the last five years, Costco has compounded EPS at roughly a mid‑teens pace, powered by steady traffic, high‑quality membership income, and disciplined expansion.

The earnings story, however, helps explain why COST stock was down over 5% in 2025. Analysts are forecasting just over 9% earnings growth in 2026. That’s well below the five-year average of around 15% earnings growth. That growth was why Costco commanded a premium multiple, and why that multiple is being questioned.

That said, Costco will continue to benefit from a value‑conscious consumer. Membership fee hikes, new warehouse openings, and steady same‑store sales can support another year of healthy profit growth, even if discretionary spending stays choppy around the edges. For long‑term investors, that combination of resilience and growth makes COST a core holding candidate in a market that still looks broadly constructive.

Lululemon Is a Rebound Story With Above‑Market Growth

Lululemon Athletica Inc. (NASDAQ: LULU) offers a different angle on quality stocks for 2026. This is the story of a premium brand working through a mid‑cycle slowdown rather than an ex‑growth story.

Over the past five years, Lululemon has delivered compound EPS growth of around 25%, well above that of the broader market. However, LULU stock is down about 40% in that time as growth in North America cooled and China's momentum showed signs of moderating.

That reset has pushed expectations and valuation lower heading into 2026, which can set the stage for a rebound if execution stabilizes. Analysts are calling for 7% earnings growth in 2026, supported by continued store growth, product innovation, and operating leverage as newer markets scale.

For investors willing to look past near‑term volatility, LULU represents a way to add higher‑beta consumer exposure with a credible long‑term brand and balance sheet behind it.

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The article "Beyond the Santa Claus Rally—5 Quality Stocks to Buy in 2026" first appeared on MarketBeat.