How to Identify Stock Market Winners Early in 2026

“Where you want to be is always in control, never wishing, always trading, and always, first and foremost protecting your butt.” – Paul Tudor Jones

Things can change quickly in the stock market.

The beginning of the year is a good time to evaluate price movement and underlying market direction. It’s a time where traders should be focused not on offense, but on defense and playing things slowly. It’s the first inning of a twelve inning stretch. There’s no need to rush; rather, let the decisions come easy and focus on avoiding any major mistakes at this point in the game.

With every year comes a different market theme. It’s our job to identify that theme as early as possible and position our portfolios to benefit from it. But sometimes, themes from prior years can carry over into the following year. And it looks like that’s what we’re seeing so far in 2026.

A Simple 3-Step Process to Find Winners

In order to beat the market, we need to own stocks that are outperforming the market. It sounds so simple, but most investors are so caught up with their favorite stocks and fail to separate the wheat from the chaff.

There are hundreds of indicators available to help pick stocks. But in our experience, the more complicated a strategy is, the less likely it will work in the future. A strategy that is easy to learn and has a history of profitability is much more likely to work in actual trading than an overly complicated approach.

Here at Zacks we give you the tools to help identify leading stocks and outperform the market. Our Zacks Industry Rank identifies the top industry groups that contain market leaders, providing a tailwind to your investing success.

Our Zacks Rank methodology pinpoints stocks that are witnessing positive earnings estimate revision activity, allowing investors to jump on board before an emerging rally gets underway. We also want to focus on stocks displaying relative strength; history has shown that trends tend to persist longer than most investors expect.

Let’s examine these three triggers in more detail.

Industry Group Association

We can start by detecting leading industry groups. The Zacks Industry Group Rank makes this process easy for investors, classifying groups based on the earnings estimate revisions of the underlying stocks within each industry. If the stocks within a given group are experiencing positive earnings revisions, that industry will receive a higher ranking. Let’s take a look at an example.

The Zacks Computer – Storage Devices industry is ranked in the top 9% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform over the next 3 to 6 months. Digging a bit deeper, this industry outperformed over the last year with an 87% return.

Quantitative research studies suggest about half of a stock’s future price appreciation is due to its industry grouping. By targeting stocks contained within leading industry groups, we can dramatically improve our odds of success.

Take note of the favorable characteristics for this group below. Stocks in this industry are relatively undervalued based on traditional valuation metrics. They are also projected to experience above-average earnings growth, which signifies a powerful combination that should lead to higher prices in the future.

Rising Earnings Estimates

Positive earnings estimate revisions are at the heart of the Zacks Rank. Our research shows that rising earnings estimates are the most powerful force impacting stock prices. Only the top 20% of all stocks that are experiencing the most substantial revisions are ranked as either a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy). Let’s build on our example.

Within the Zacks Computer – Storage Devices industry, Western Digital is a Zacks Rank #1 (Strong Buy) stock. Western Digital manufactures and sells data storage devices and solutions based on HDD technology. The company offers internal HDDs, data center drives and platforms, as well as external and portable drives.

The California-based company has been the beneficiary of improving earnings estimate revisions as of late. Looking into fiscal 2026, analysts have raised their annual EPS estimates by 0.39% in the past 60 days. The Zacks Consensus Estimate now stands at $7.66 per share, reflecting better than 55% growth relative to the prior year.

The storage provider has exceeded EPS estimates in each of the past 11 quarters. The company delivered a trailing four-quarter average surprise of over 9%, reflecting strong execution in converting AI-driven demand into results. This track record aligns perfectly with the power of the Zacks Rank system, which prioritizes stocks showing upward earnings revisions.

Western Digital Stock Shows Favorable Momentum

Western Digital WDC was the second-best performer in the S&P 500 last year. Only stocks that are in extremely powerful uptrends are able to make this type of price move and widely outperform the market. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.

Notice how shares remain above upward-sloping 50-day (blue line) and 200-day (red line) moving averages. The momentum appears to be carrying over into 2026 as shares have already advanced roughly 15% this year. With both strong fundamentals and technicals, Western Digital stock is poised to continue its outperformance.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Western Digital has recently witnessed positive revisions. As long as this trend remains intact (and WDC continues to deliver earnings beats), the stock will likely continue its bullish run throughout this year.

Bottom Line

By focusing on companies that are within leading industry groups, experiencing positive earnings estimate revisions, and showing relative strength, we can narrow down our list of stocks to those with the best profit potential.

Make sure to take advantage of all that Zacks has to offer to uncover top stocks early on in the new year.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research