5 stocks winning the rotation in 2026

Transcript:

Caroline Woods
Big tech has dominated portfolios for years, but David Johnson’s top stock picks right now don’t include a single mag seven name. Joining me with his high conviction names is David Johnson, chief investment officer at the Johnson Group. David, so good to have you here.

David Bahnsen
So good to be with you.

Caroline Woods
So before we get into your top picks, just address that quickly. Is that because you already own mag seven or are you just betting that the tech lead era is over here?

David Bahnsen
No, it’s not a bad at all. We’re just dividend growth investors and there are no dividend growth names in the mag seven. And from a valuation standpoint we believe and it’s obviously proven out to be very true for about a year now, that there’s no such thing as the Mag seven, that there are individual names. Do you have Nvidia and Google last year that are up huge?

You have other names that are down a bunch of names that are below market. I’m not sure that any of them are up a year to date. They’re all just trading on a very different dynamic. So we don’t see it as a monolithic group. And then when you look at the individual names, some of those valuations could become attractive.

But again, from a dividend growth standpoint, it doesn’t fit our criteria. And we do think that they mostly trade off of popularity. And that’s not a, investment thesis that we have conviction in.

Caroline Woods
Okay. So let’s get into some of your top picks, starting with Blackstone, which is down over 20% year to date. Why are you bullish here? What are investors missing.

David Bahnsen
Yeah. Blackstone is probably the name that over my 26 years managing money, we’ve made the most money in and and it has luckily for us gone down here over the last year. I say luckily because we’re big buyers and we’re constantly reinvesting dividends and Blackstone is being caught into a pretty negative sentiment amongst all the alternative asset managers.

All the names in the space are down, and we think it is wildly misunderstood as it pertains to Blackstone. They have over $1 trillion of assets paying fees. As an owner of Blackstone, we’re sharing in those fees when they manage money well, which they almost always do across real estate, private equity, private credit, infrastructure. Then we get a carried interest and that’s all it is.

There’s no capital intensity. It’s not balance sheet investing. So you’re investing in their ability to raise money, which they obviously do very well. But then you’re also investing. You’re investing in their ability to manage a well. They’ve never had a private equity fund in 40 years lose money. They’re just outstanding asset allocators. Now the sentiment is very negative right now.

And there’s concerns about liquidity. Some of their competitors have made products available to retail investors that don’t have the same liquidity that institutional investors are used to not having. I don’t personally think it matters whatsoever long term for us, but that sentiment could be a drag for a while. So it gives us a chance to continue accumulating. But Blackstone’s business is worth far more than it’s trading at right now, so it’s a good value play.

Caroline Woods
Okay, another one of your top picks that has some pretty negative sentiment over the past one year, really down 40%. Is UnitedHealthCare pretty out of favor? Why is now the time to buy it?

David Bahnsen
Yeah, we only bought it more recently because it’s out of favor. We actually just coincidentally bought it the same week that Buffett and Berkshire Hathaway did. So other people much smarter and larger than us are feeling the same. The issue is that there’s real bad news there, that there’s concern about Medicare reimbursement, there’s concern about regulatory, imposition, and that those things are priced into the stock and then some.

But when you look as a dividend growth investor at 25 years of UnitedHealthCare, you think about the unbelievable things it’s gone through, from Covid to the entire Affordable Care Act legislation to financial crisis to, you know, so, obviously the murder of their CEO. And they’ve grown the dividend every single year through the process that shows us the conviction that they have in their own business model, the cash flow and free cash flow productivity.

And we think that at this price, it is already priced in bad news. So there’s an asymmetrical relationship between the risk and the reward okay.

Caroline Woods
Next up is VCE properties. This is a read a real estate investment trust. It’s tied to casinos and hospitality entertainment. Why does that make sense now. Is that a consumer resilience play or just a yield story.

David Bahnsen
What has nothing to do with what people are doing inside of the buildings? They’re a landlord. And so Caesars PNL, we’re not invested in. For all I know, it’s a great investment, but I don’t have an opinion on Caesars. I have an opinion on Caesars ability to pay their rent, and that’s what VCE is, is they are the brick and mortar landlord.

Here in New York City, they own Chelsea Piers. They have the balance sheet and ability to go acquire other assets on the debt and equity side. So they’ve proven to be a very good operator and a very disciplined capital allocator. And we’re getting over a 6% dividend yield. And so it really is not so much a statement on the function of the businesses invested in.

It’s a statement of the rent collection.

Caroline Woods
Okay. Fair point. About VCE, although your next pick is tied to the consumer and that’s Pepsi. There’s a lot of talk about budgets being constricted, that type of thing. Yet both Pepsi and Coke have been having a good year.

David Bahnsen
Yeah, staples are the best performing sector so far this year, and they were the worst performing sector last year. And so we’ve been big holders of Pepsi a long time. We added a ton last year and the one 20s and one 30s, it’s now up in the one 60s. But no, you’ve got to remember the consumer staples are not ever, bet on the consumer.

That’s why they’re staples. It’s a bet that people need snacks and water and soda and Band-Aids and shampoo and diapers. No matter what is happening in the economy. And so we’re generally not very bullish or constructive in the consumer discretionary space, but the consumer staples space, especially with a brand portfolio like Pepsi, they’re as good as it gets.

They’ve grown the dividend every year for 50 years. And they definitely got caught, I think, into aggressive pricing power assumptions. They were pretty good in 22, 23, in the era of inflation and passing on prices, but they couldn’t keep doing it. So they’ve now announced price cuts. But they’ve made up for that with volume. And we’re just very impressed with what they’re able to do with sort of, repositioning their brands.

They have outstanding assets and they execute very well.

Caroline Woods
Okay. And then finally, a name that is linked to discretionary spending, that’s Vail Resorts. I’m curious why you’re optimistic about the ski industry, especially since my Instagram feed has shown how bad the weather is out west for skiing this year.

David Bahnsen
Yeah, well, they ended up getting, we bought it late in 25, and it had been down quite a bit throughout 25. And so the assumptions about a bad snow season were at peak levels there. And that was really, part of the stock price that we bought. And then now, of course, it’s ended up being a much heavier snow than people expected, including where some of their Tahoe and Reno based assets are.

And Utah has had a little lower of a ski season. But this is the reason why Vail used to lose a ton of money when it was a bad snow season, because as skiers came and went, their revenues and EBITDA went up and down. They basically streamlined it beautifully by the sale of the Epic Pass. So they now collect their revenue.

And if there are a lot of skiers coming out, then great. And if not, they’re still getting paid and then they have ancillary revenue. You still want more people in the mountains for ski lessons and other ancillary revenues, but they did a remarkable job redefining their business model, and the Epic Pass was a game changer at streamlining cash flows.

When a company streamlines cash flows with predictable, consistent, repeatable revenues, that gives us, as dividend growth investors confidence in their ability to continue growing the dividend. Vail, you have a 6% dividend yield. And so we don’t think we have to worry about the weather because we definitely don’t think we could predict it.

Caroline Woods
Yes, I know all about the epic pass. I am one of those people that has paid for it but not used it yet this season. Next week that will change.

David Bahnsen
So you’re you’re a great example of how we can make money.

Caroline Woods
Yes. Yes, exactly. And I can lose that. So, David, you know, just to bring it back to where we started and that’s the fact that the Mag seven is not in your portfolio. You talked about the kind of the weak performance that we’ve been seeing there, but we’ve been seeing some weakness really all throughout tech, especially things like software as well, despite the fact that some of these names do pay dividends.

You know, Apple, Microsoft, Nvidia, meta, not necessarily high dividends. Are you buying or getting ready to buy any of those dips at all?

David Bahnsen
Not not even a little bit. First of all, we think our company of their alleged free cash flow size paying a 0.2% dividend is worse than a 0% dividend. What they do is they pay a tip money dividend for the purpose of being able to screen into certain dividend portfolios. But we believe management has to show a commitment to the dividend.

And when you have more free cash flow than any company in history and you’re hoarding it, you’re putting downward pressure on the upside for the investors. Nvidia is a little bit different because of their capital intensity. But with Microsoft, Apple, meta, they ought to be huge dividend payers. It’s just a philosophical difference. No, I think that you also have to look at, what has driven the stock prices up till now.

Microsoft has gotten hit. B first of all, it was just extraordinarily overpriced. But based on the very opposite thing that is impacting Nvidia, Microsoft is now saying we’re going to be spending a larger portion of free cash flow between Google, Facebook, meta, Amazon. They’re now going to be spending 80 to 100% of free cash flow on CapEx. They used to spend 10%.

So they’re now real cash flow. Productivity is going away all in the name of a capital expenditure investment. In the meantime, if that does slow, that ends up hitting Nvidia. So we think they’re kind of darned if they do. Darned if they don’t that both sides of that look unattractive to us. There’s definitely a place the sentiment can come back in.

But the thing that nobody paid attention to last year, when some of the stocks are doing well, the circularity in the funding model, everybody’s paying attention to that now. So I think it’s going to be a tough year. And there’s a lot of vulnerabilities in AI assumptions.

This story was originally published by TheStreet on Mar 3, 2026, where it first appeared in the Video section. Add TheStreet as a Preferred Source by clicking here.