(This is “The Best Stocks in the Market,” brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh — Sean looked back at some of the year’s biggest winning stocks that we wrote for you as part of the “Best Stocks in the Market” article. Lam Research (LRCX) and KLA Corp (KLAC) were ranked 1st and 4th among all our columns. We would like to point out that none of these stocks were historically cheap at the time we warned of a breakout. Neither sold at an absolute or relative discount to their sector. I bring this up because I want to emphasize the fact that valuations based on past or future numbers have no part in our process. We are curious enough to find out the valuations of the stocks we write about. And while it’s true that sometimes there are cheap earnings multiples in our best stocks universe, this is completely coincidental. That’s because we know that in the short term, trends outweigh valuations. There are times when you can win even in the medium term. In the long run, the initial valuation you pay will probably be much more important, but that’s not always the case. This is because there are two ways for a stock to grow to a high valuation. The first is that everyone is constantly on guard. Expensive stocks become cheaper because their prices fall significantly. However, the second method is also possible. Expensive stocks can deliver very strong earnings growth, going from expensive to affordable and even potentially undervalued. Nvidia has spent the past five years accomplishing this feat. As much as the stock price rose, earnings per share grew even faster, thereby easing the multiple without the necessary price decline. magic! Lam and KLA operate in one of the most advantageously located spaces within the semiconductor industry: capital equipment. Is it cheap? No. Is it possible that it could end up cheaper for reasons other than a stock price decline? I say it’s absolutely possible, just like Nvidia and many other once-expensive technology stocks. As JPMorgan’s Michael Chamberrest noted over the weekend, “Technology sector capital spending contributed 40% to 45% of U.S. GDP growth over the past three quarters, up from less than 5% in the first three quarters of 2023.” Well, many of the stocks we’ve written about so far this year are among those that have benefited from technology investing. There are a limited number of players with the expertise, scale, and credibility to enable the chip renaissance we are currently experiencing. These two companies fit the bill and their orders are exploding. You can’t just call Nvidia, Alphabet, AMD, Broadcom, or Taiwan Semi and say, “Hello, I’d like to help you with advanced lithography!” Lam, KLA, Applied Materials (AMAT) and several other companies have established global supply chains for semiconductors. Chip designers and manufacturers cannot avoid them. The need for increased yield and speed to market has not been important until now because the stakes are too high. In this way, these stocks entered and remained in the list of best stocks in 25 years. Let’s talk about 2026… Lam is very close to retesting its rising 50-day moving average. As seen above, this stock has been in reliable support territory since its breakout in May. I probably won’t automate this given the potential for false breakdowns and further increases. I’ll probably keep an eye on it and check in for any major violations towards the end of each Friday. It achieves that level for about $159. If some people who made big gains in stocks last year are using the new calendar as an opportunity to lock in profits that won’t be taxed until 2027, they could be under even more pressure. Long-term investors should reduce the moving average from 200 days to 100 days (pictured above) and watch for orderly pullbacks. One thing to note, and also seen in the chart above (see below), is that the stock’s momentum has steadily cooled since its peak last October. This is consistent with what we’ve seen across the AI ecosystem. As the RSI deviated downward, Mr. Lam continued to set new highs. In that context, the recent mild rollover is entirely natural. However, this is also something to keep an eye on for Long, as he doesn’t want the divergence to widen from here. Let’s take a look at KLA Corporation’s 1-year chart. JPMorgan semiconductor analyst Harlan Sarr raised his price target on the stock by 40% to $1,485 in October, and the firm recently included it on its list of top stocks for 2026. While that sounds great, you still need to focus on risk management. This is a better setup than LRCX because the outages are obvious. KLA continues to have a clear long-term upward trend. The price is well above the rising 200-day moving average ($942), a classic “stay on trend” move. Buyers have run out of ammunition above $1250, which creates new overhead resistance. Violation of the 50-day period on the rise looks like it will face another challenge, but it is clearly a place for traders to cut their losses. Investors can ignore such short-term noise and start accumulating now. I will remain a buyer as long as it stays above $950. A break below this would mark a clear end to the current uptrend and signal that there has been some real change in sentiment around this group. Position sizing is key with KLA, as $950 is a significant drop from here (about 22%). Own it small and add using dip. There is a risk of another breakout above $1,200 before you have a chance to add, but you should be able to lower your average cost over time. It’s not the end of the world. Here’s Sean to explain the fundamentals… Stocks to watch: Lam Research and KLA Sean — The semiconductor industry had a great year in 2025 with SMH up 49%. Lost is the company that enabled the NVDAs of the world to reach a market capitalization of $4 trillion. As Josh mentioned, LRCX and KLAC have been our best stocks and fourth best stocks since we wrote about these two on August 11th and October 6th. Shares are up 68% and 34%, respectively, since August and 15% and 7% since October. Both of these stocks trade at 30 times forward earnings, with 2026 EPS growth expected to be between 17% and 18%. We can see that Lam Research Corporation (LRCX) has rebounded incredibly after Liberation Day. The company’s fundamentals are consistent with its impressive performance over the past few years. Revenues bottomed out at $3.21 billion in the fourth quarter of 2023, down 17% year over year, before rebounding to record five consecutive quarters of growth. By Q1 FY26, revenue reached $5.32 billion, an increase of 28% year over year, and full-year FY25 revenue reached $18.4 billion, an increase of 24% compared to FY24. This recovery in sales has also been accompanied by an expansion in profit margins. The gross profit margin rose from the bottom of 44.8% to 50.6% in the first quarter of fiscal 2026, and the operating profit margin expanded from the low 20% range to approximately 35%. Over the next five years, management expects cumulative data center capital spending to be approximately $2.5 trillion, with wafer fabrication equipment spending representing approximately $200 billion, with industry forecasts reaching more than $105 billion by 2025. (Data from Quartr) Growth is being driven by AI-driven investments in high-bandwidth memory, advanced packaging, and hardware upgrades, with advanced packaging revenue more than doubling year-over-year in FY24. The company has set ambitious goals for 2028, with sales of $25 billion to $27 billion, a gross profit margin of over 50%, and EPS of $6 to $7.00, with a long-term goal of sales of $30 billion or more and EPS of $8.00 or more. If you look at KLA Corp. (KLAC) right now, this stock is also incredibly uplifted by the fundamentals that back it up. KLA is the biggest beneficiary of the advanced packaging boom like AI and LRCX, with advanced packaging revenues increasing from approximately $300 million in 2023 to $500 million in 2024 and projected to exceed $925 million by the end of 2025, representing nearly 70% year-over-year growth. It is driven by building AI infrastructure, high-bandwidth memory, and increasingly complex chip designs. KLA has experienced significant profit growth, with non-GAAP gross margins in the 63% range, operating margins in excess of 44%, and free cash flow exceeding $1 billion per quarter for the first time. KLA’s services business currently accounts for about 23% of its revenue and has enjoyed 53 consecutive quarters of year-over-year growth, adding a more predictable recurring revenue stream to its cyclical semiconductor-focused business. Capital allocation is also firing on all cylinders, with a 16th consecutive year of dividend increases, a new $5 billion share repurchase authorization, and a commitment to return more than 85% of free cash flow to shareholders while maintaining the strength of our investment-grade balance sheet. Disclosure: (none) All opinions expressed by CNBC Pro contributors are solely their own and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliate companies, and may have been previously disseminated on television, radio, the Internet, or another medium. The above is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any securities or other financial assets. The Content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of your own financial or investment advisor. Investments involve risk. The analysis examples included in this article are examples only. The views and opinions expressed are those of the contributors and do not necessarily reflect the official policy or position of Ritholtz Wealth Management, LLC. Josh Brown is the Chief Executive Officer of Riholtz Wealth Management and may maintain securities positions in the securities discussed. The assumptions made within the analysis do not reflect the position of RITHOLTZ WEALTH MANAGEMENT, LLC or the full disclosure. Click here for the full disclaimer.
