If you made money riding the fourth-quarter rally in beaten-down stocks, Louis Navellier has some advice: take your chips off the table. The veteran investor and founder of Navellier & Associates thinks the "junk rally" is over, and 2026 will belong to companies with actual earnings growth.
The Great Rotation Returns
Navellier isn't buying the sustainability of the fourth-quarter mean reversion that saw the market's worst performers suddenly leading the charge. In his latest Market Buzz video, he argues that January marks the beginning of a "big flip" where quality companies will reclaim their leadership position.
What defines quality in Navellier's world? Simple: accelerating sales and earnings. And he's already seeing evidence that institutional money is flowing back into his preferred sector. He pointed to an intraday explosion in data center stocks on the first trading day of January as proof that the smart money is repositioning.
Where The Money Is Going
Navellier is preparing for what he colorfully calls "judgment day" for corporate earnings. His conviction centers on data center demand and AI implementation driving substantial growth for a select group of companies.
His biggest bet remains Nvidia Corp. (NVDA), which represents his largest position. He's forecasting a 66.7% increase in sales and a 71% jump in earnings, helped along by new chip sales to China. Those aren't small numbers for a company of Nvidia's size.
Palantir Technologies Inc. (PLTR) also ranks high on his conviction list. Navellier sees the company as a premier "AI implementer" for government contracts and expects earnings to surge 64.1%. Government spending on AI infrastructure isn't slowing down, and Palantir has positioned itself as the go-to contractor.
Then there are the infrastructure plays. Seagate Technology Holdings PLC (STX) and Celestica Inc. (CLS) both stand to benefit from the data center boom, with projected earnings increases of 37.6% and 58.1%, respectively. Someone has to build and supply all those data centers, after all.
The Deflation Warning
Navellier's quality focus isn't just about earnings momentum. He's genuinely worried about the broader economy, and his concerns run counter to the prevailing narrative. While many investors remain fixated on inflation, Navellier believes deflation will be the dominant story for 2026.
His evidence? Rental costs are falling, condo prices are declining, and energy prices remain subdued. He thinks the Federal Reserve is "looking in the rearview mirror" and needs to cut rates by at least 100 basis points to prevent a more serious economic slowdown. That's a bold call in an environment where many economists still debate whether the Fed will cut at all.
How 2025 Ended
The major indexes closed out 2025 on a positive note. The S&P 500 gained 16.65% for the year, while the Nasdaq Composite and Dow Jones rose 20.54% and 13.38%, respectively.
The SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF (QQQ), which track the S&P 500 and Nasdaq 100 indexes, continued their upward trajectory in Monday premarket trading. The SPY climbed 0.24% to $684.82, while the QQQ advanced 0.52% to $616.29, according to market data.
Whether Navellier's prediction about the return of quality stocks proves correct will become clearer as earnings season unfolds. But his track record and willingness to go against the grain make his thesis worth watching, particularly if you're trying to figure out where to position your portfolio as we move deeper into 2026.