James Glassman's Top 30 Stock Picks Mid-Year Recap
Beating the Dow, beating expectations: How dropping Nike for Costco could secure defensive wealth amid market churn.
Disappointed with the performance of the Dow Jones Industrial Average, I decided in 2023 to reinvent the index to reflect the changing nature of the U.S. economy. I kept 11 of the Dow's 30 components and added some choices from among personal favorites, old 10 Best lists and the Wired Index, concocted by the tech magazine in 1998.
Top 30 is beating expectations. Over the past 12 months, it returned 27%, compared with 24% for the Dow itself. Total cumulative return for three years: 69% for Top 30, 54% for the Dow.
Investing lessons from the Top 30
Performance, however, isn't the only story Top 30 tells. A review of the past 12 months provides a few broad lessons on investing:
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1. Even when your portfolio has a great year, you will have a lot of losers
Among my Top 30 stocks, 10 declined, four of them by more than 20% each. The Dow had seven losers in 2025 and eight in 2024. Losing is part of the game. The S&P 500, for example, has declined in 13 of the past 60 calendar years. A churning stomach is the price we all pay for the substantial returns that stocks provide.
2. Diversification is essential
When some sectors fall, others rise, mitigating losses. As I wrote when I introduced Top 30, the Dow is more akin to a quirky managed portfolio than an index. For instance, it lacks enough technology stocks, and it has no real estate or transportation stocks at all.
Top 30 better reflects the U.S. economy. Over the past year, many retailers, packaged goods and software firms suffered, but their declines were offset in Top 30 by the gains of energy companies and internet platforms.
Top 30 is beating expectations. Over the past 12 months, it returned 27%, versus 24% for the Dow Jones industrial average.
3. Reversion to the mean is a powerful force
In its first year, Top 30 beat the Dow by 13 percentage points. Now, my aggregate lead is much thinner — and I expect it to get thinner still — but I am hoping I'll remain ahead.
4. Trust your instincts
In last year's review of the Top 30's performance, I had considered making three changes. I was worried about “management failures” at UnitedHealth Group (UNH) and had concerns about Nike (NKE) and Lululemon Athletica (LULU) because of tariffs, stronger competition and tired brands. But I decided to stay the course. That turned out to be a mistake. All three stocks declined, two by double digits, and Lululemon was my biggest loser.
Top 30 changes
1. Traded Caterpillar for Deere
My biggest winner, Caterpillar (CAT), nearly tripled in price over the past 12 months. The company increased sales of building equipment thanks to the construction boom triggered by federal infrastructure bills and data center demand. But the stock makes me nervous. Its price-to-earnings ratio (P/E) is too high, and investment research service Value Line sees revenue growth slowing from an annual average rate of 8.5% over the past five years to 6% for the next five.
I'm going to trade Caterpillar for Deere (DE), another large equipment manufacturer. It's smaller, less pricey and has been harmed by a cyclical downturn in agriculture that will inevitably reverse.
2. Swapped Lululemon for Costco
I was in love with Lululemon years ago, but its style of yoga wear now has too many imitators. Also, my list needs a big-box giant retailer. The obvious choice is Costco Wholesale (COST), a brilliantly managed company with $275 billion in revenues.
Costco keeps its prices and operating costs low and its customers happy. The stock is not going to do anything spectacular, and it's not cheap. You're paying for consistency and the ability to ride out any storm — valuable characteristics in a portfolio.
3. Substituted Nike for NextEra Energy
I actually like Nike and continue to recommend it, but I realized that I have a huge gap in the portfolio at a time when demand for electricity is rising sharply. So I am substituting a utility, NextEra Energy (NEE), with an all-of-the-above strategy to generate electricity using the gamut of resources, including renewables.
NextEra's talented CEO, John Ketchum, is projecting 8%+ annual growth in earnings over the next 10 years. No one can accurately predict that far ahead, of course, but demand for electricity is nearly insatiable. Shares are priced higher than the typical utility, as they should be.
4. Replaced UnitedHealth with McKesson
Finally, I need a large healthcare company to replace UnitedHealth. I'm shunning politically vulnerable insurers and hospitals and instead choosing a well-run company with burgeoning sales and profits and low capital-investment requirements. It's McKesson (MCK), one of three firms that control 90% of the market for the distribution of pharmaceuticals and medical and surgical products. Shares have quadrupled in five years, but when you consider that earnings are growing at 12% annually, the P/E remains reasonable.
Top 30 non-movers
Three of the four stocks I am eliminating were components of the Dow: Caterpillar, Nike and UnitedHealth. That leaves eight on the Top 30 list, and the most timely for investors is Microsoft (MSFT), which, unlike other tech trillionaires, trades at about the same price today as it did two years ago — despite revenues that rose 17% in the most recent quarter. Earnings have increased in what I call a beautiful line, up every year for more than a decade. Investors worry that Microsoft is spending too heavily on artificial intelligence and that it laid off 15,000 employees in 2025. I see an underpriced tech giant getting its house in order for a new era.
Among the other keepers, I'm especially pleased with Amphenol (APH), a maker of critical components for the telecommunications sector. It's hardly a household name, but it's the 54th-largest U.S. company in the S&P 500 by market capitalization (price times shares outstanding) and it roughly doubled in the past year.
I was also glad to see Starbucks (SBUX), under new leadership, moving up again. Alphabet (GOOGL) remains my top tech-platform choice because of its adaptation to AI and the growth of YouTube, the online video-sharing platform.
Netflix (NFLX) was among the losers this year, but never, ever sell it. Salesforce (CRM) and Automatic Data Processing (ADP) fell sharply on concerns that AI would make their services less valuable or even obsolete. I believe the negative sentiment is overdone.
The Dow is weirdly weighted by the prices of its components; a 1% move in Goldman Sachs (GS), at $927 a share, has nearly 20 times the impact of a similar move in Verizon Communications (VZ), at $47. Top 30 is equally weighted. I don't expect readers to own all 30 stocks, buying and selling to maintain a 3.33% proportion for each one in the portfolio. A smart asset manager may turn Top 30 into a fund someday, but until then, you'll likely want to use the list to glean ideas for your own purchases rather than buying the whole thing.
A final note: Readers ask from time to time why I don't own most of the stocks I recommend. Rest assured that I am not being hypocritical or unenthusiastic about companies I write about. Instead, I have grown uncomfortable with the potential conflicts in writing about what I own, so I am sticking almost exclusively to index funds. You don't have to.
James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. He owns shares in Netflix and Microsoft. You can reach him at JKGlassman@gmail.com.
This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to Kiplinger Personal Finance Magazine to help you make more money and keep more of the money you make.
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