These stocks are outperforming this year and are cheap heading into 2026

U.S. large-cap indexes have rallied YTD (Nasdaq >20%, S&P 500 ~16%, Dow ~11.5%) amid AI-driven investment flows; CNBC Pro screened S&P 500 names that have outperformed the market, have forward P/Es under 20 and below the S&P average, YTD gains ≥20% and consensus buy ratings. Standouts include CVS (shares up ~78% YTD, forward P/E ~11, LSEG consensus target $90.66 implying ~16% upside; Q3 revenue/earnings beat and raised adjusted profit outlook but warned of modestly lower Caremark growth), Micron (rally ~174% YTD, forward P/E ~12; Morgan Stanley reiterated overweight citing DRAM shortages) and other names such as AbbVie, Medtronic, Newmont and Vistra as potential continued winners.

Analysis

Market structure: Winners are value-biased health care (CVS, ABBV, MDT) and cyclicals tied to scarce tech inputs (MU) and commodities (NEM); they gain pricing power if DRAM tightness persists and gold rallies on any risk-off. Losers are stretched AI/momentum names if capital rotates—expect some compression in mega-cap growth multiples and a rotation into earnings-anchored names. Cross-asset: a sustained move into cyclicals would lift real yields and corporate borrowing spreads modestly; gold up would pressure USD and long-duration tech via higher rates; options IV should fall on names with large rally and rise on cyclical beat/miss risk.

Risk assessment: Key tail risks are (1) regulatory action on PBMs/Medicare pricing that could cut CVS EBITDA by >10% over 12–36 months, (2) a DRAM supply surge that reverses MU’s earnings thesis within 3–9 months, and (3) macro recession that dents discretionary healthcare and power demand over 6–12 months. Hidden dependencies: CVS Caremark earnings hinge on contract repricing cadence and CMS rulemaking; Micron depends on spot DRAM pricing and Chinese capex flows. Catalysts: quarterly earnings (next 30–90 days), monthly DRAM spot-price reports, and upcoming CMS/FTC announcements.

Trade implications: Favor tactically overweighting MU and CVS with defined-risk option overlays—use 6–12 month call spreads on MU to capture earnings leverage and buy 3–9 month protective puts on CVS to hedge PBM policy risk. Rotate 3–5% portfolio weight from high-PE AI exposure into NEM (inflation/flight-to-safety hedge) and VST (stable cash flow power generator) over 2–8 weeks. Consider pair trade long MU vs short overvalued AI ETF or top-PE semiconductor cohort to neutralize beta.

Contrarian angles: Consensus underestimates policy/regulatory gamma for PBMs and overestimates permanency of DRAM tightness; Micron’s forward P/E of ~12 implies earnings need to outpace capital intensity — if DRAM pricing normalizes, downside is fast. CVS’s low Fwd P/E (~11) looks underpriced for a diversified healthcare + retail cash flow stream unless PBM contract drag >15% EBITDA; Newmont (NEM) is a cheap macro hedge if real yields fall below +0.5% within 6–12 months. Historical parallels: 2016–2018 semi upcycles showed large forward swings; size positions accordingly and use options to limit tail loss.

Key Decisions for Investors

• Establish a 2–3% portfolio long in MU with a 6–12 month horizon; implement a defined-risk call spread (buy 6–12 month calls and sell calls 15–30% higher) sized equal to the equity stake. Add on any pullback >10%; hard stop at -15% from entry.
• Initiate a 1.5–2% long position in CVS (ticker CVS) targeting ~12–18 month upside to analysts' $90 target; hedge idiosyncratic regulatory/PBM risk by buying 3–9 month puts struck ~10–12% below entry (budget ~1–2% of position value).
• Allocate 1.5–2% to NEM as a tail-hedge against risk-off and real-yield declines (6–12 month hold). Trim if 10-year real yield rises above +1.0% or gold falls >12% from current levels.
• Reduce high-PE AI/momentum exposure by 1–3% over the next 2 weeks and redeploy to MU/CVS/NEM; implement a pair trade: long MU (2%) vs short a top-PE semiconductor/AI ETF (2%) to capture relative-value if DRAM thesis materializes. Monitor CMS/FTC PBM announcements and monthly DRAM spot-price prints—act within 30–90 days on new information.