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A Remarkable Year for Value — 2025’s Unlikely Comeback

In a market dominated by megacap AI names and volatile rate expectations, few investors expected traditional “value” strategies to shine in 2025. Yet against all odds, Morgan Stanley’s Vintage Value List delivered one of its strongest performances ever. Every stock in the basket recorded over 10% year-to-date gains, and the top performers — KKR, Walmart, and Tenet Healthcare — surged nearly 70% apiece.

The results surprised even seasoned investors. For much of 2025, equity markets swung between optimism and anxiety: persistent inflation fears early in the year, followed by uncertainty over when the Federal Reserve would finally pivot to rate cuts. Many growth stocks — especially smaller tech names — struggled under the weight of high borrowing costs. But value-oriented names quietly staged a renaissance.

Morgan Stanley’s list captured this rotation perfectly. Companies with durable cash flows, stable earnings, and pricing power finally saw capital inflows after being largely ignored during the post-COVID growth mania. As we now enter 2026, the central question is whether this value momentum has more room to run — and whether the newly unveiled Vintage Value 2026 List can repeat the magic.

Inside the “Vintage Value” Philosophy

Morgan Stanley’s Vintage Value framework isn’t about buying what’s cheapest on paper. It’s about identifying quality businesses trading at reasonable valuations — companies with the discipline, financial strength, and market positioning to deliver sustainable earnings growth even in uncertain environments.

Analysts describe the strategy as “quality at a discount” rather than pure deep value. These are firms that:

1. Generate consistent free cash flow and return capital to shareholders via dividends or buybacks.

2. Maintain healthy balance sheets, often with net cash positions or low leverage ratios.

3. Possess pricing power, allowing them to preserve margins even in inflationary cycles.

4. Operate within secularly stable industries, from healthcare to logistics and consumer staples.

5. Trade at or below long-term average valuations, providing both safety and upside.

It’s a strategy rooted in fundamentals — but tuned for modern markets. Morgan Stanley’s analysts aim to identify names that can compound earnings steadily, not just bounce on sentiment or macro headlines.

How the 2025 List Outperformed

The Vintage Value List’s stellar 2025 performance was not just luck. Each of the top performers benefited from specific macro tailwinds and disciplined capital management.

KKR: The Private Credit Powerhouse

KKR (NYSE: KKR) became one of Wall Street’s top-performing financial stocks in 2025, as investors poured into private credit and alternative assets amid rising interest rates. Fee-related earnings jumped double digits, while the firm’s asset management division expanded aggressively into infrastructure and renewable energy. With more institutional capital seeking alternatives, KKR emerged as a prime beneficiary of the higher-for-longer rate environment, delivering a 72% total return.

Walmart: Resilient Retail Giant

Walmart (NYSE: WMT) demonstrated how operational excellence can thrive even under consumer stress. The retailer benefited from middle-income households trading down, boosting store traffic. At the same time, its rapidly growing advertising business and e-commerce margins lifted profitability. Walmart’s push into health services and AI-powered logistics systems showed investors that even legacy retailers can innovate efficiently. The stock climbed nearly 68% in 2025, proving that stability can still offer impressive returns.

Tenet Healthcare: Quietly Dominant in a Rebound

Tenet Healthcare (NYSE: THC) may have been the list’s dark horse, but it delivered one of the most impressive rallies of the year. Following years of restructuring and debt reduction, Tenet benefited from rising hospital utilization rates and surgical procedure growth as healthcare normalized post-pandemic. Operating margins expanded steadily, and the company’s free cash flow surged to record levels. With investors seeking predictable defensive plays, Tenet’s combination of growth and value made it a standout pick.

The Broader Pattern: Defensive Growth Wins

The unifying theme behind these successes is what Morgan Stanley calls “defensive growth” — businesses with earnings stability, pricing power, and moderate exposure to cyclical rebounds. In 2025, this approach offered the best of both worlds: protection from macro volatility and participation in upside momentum.

While growth investors chased AI narratives and speculative tech, Morgan Stanley’s portfolio quietly compounded returns through steady cash flow generators. The firm’s data shows that the Vintage Value list beat the S&P 500 by nearly 600 basis points in 2025, marking its fourth consecutive year of outperformance.

What’s New in 2026: The Next Chapter of “Vintage Value”

Although Morgan Stanley hasn’t fully disclosed its 2026 Vintage Value lineup, early insights suggest a strategic pivot toward undervalued cyclicals and service-oriented compounders poised to benefit from the next macro phase: monetary easing.

Key themes expected in the 2026 edition include:

• Industrial revival: Companies leveraging U.S. reshoring, infrastructure upgrades, and manufacturing automation.

• Healthcare expansion: Firms benefiting from aging demographics and hospital system consolidations, still trading below fair value.

• Financial normalization: Select banks and asset managers positioned to capitalize on improving credit demand and eventual rate cuts.

• Tech enablers: Infrastructure and semiconductor companies supplying the backbone for AI and cloud growth — without extreme valuations.

In short, Morgan Stanley is signaling a broadening of value leadership, moving beyond purely defensive picks toward cyclical names ready to thrive as policy tailwinds return.

Why Investors Are Paying Attention

Wall Street releases dozens of “top pick” lists every year — but few match the Vintage Value portfolio’s track record. Since 2019, it has produced an average annualized return north of 21%, outperforming the Russell 1000 Value Index by nearly 700 basis points annually.

That consistency has made it a go-to reference for institutional managers and private wealth clients seeking long-term stability. Its appeal lies in its transparency: Morgan Stanley only refreshes the list once a year, ensuring that selections reflect conviction, not short-term market noise.

Retail investors are also taking note. With broad market valuations still elevated and volatility lingering, strategies emphasizing free cash flow and balance sheet strength are seeing renewed interest. Many investors who chased unprofitable tech stocks in the pandemic era are now gravitating toward predictable compounders.

The Macro Backdrop: Why Value Could Stay in Vogue

The upcoming 2026 landscape may once again tilt in favor of value-oriented investing. Several macro factors are aligning in its favor:

1. Monetary Easing Ahead: Markets now expect the Federal Reserve to begin cutting rates by mid-2026, lowering financing costs for industrials, financials, and utilities.

2. Earnings Broadening: Profit growth is expected to spread beyond megacap tech into mid-cap sectors like healthcare, materials, and consumer goods.

3. Valuation Reversion: Growth stocks still trade at a 40–45% premium to historical averages, leaving limited upside. Value stocks, meanwhile, sit near multi-year discounts.

4. Fiscal Tailwinds: Infrastructure, clean energy, and healthcare spending remain strong policy themes globally, benefitting value-heavy sectors.

5. Global Rotation: With emerging markets and European equities regaining attention, international diversification could further boost value performance.

This combination of falling rates, earnings breadth, and valuation normalization creates fertile ground for another year of outperformance from the “Vintage Value” playbook.

How to Use the List as a Guide

While not a substitute for personal research, Morgan Stanley’s Vintage Value list can serve as a strategic blueprint for disciplined investors. Here’s how to approach it:

• Study each company’s fundamentals. Look for consistent free cash flow, strong ROIC, and improving margins.

• Track valuation trends. Compare current multiples to 5- or 10-year averages; Morgan Stanley typically picks names 10–20% below their historical mean.

• Watch for earnings revisions. Upward estimate revisions often precede major re-ratings.

• Use volatility to your advantage. Vintage Value names often perform best when bought during macro pullbacks — not at peak optimism.

• Diversify exposure. The list is designed to capture multiple sectors, from financials and healthcare to industrials and staples, offering built-in balance.

This disciplined, fundamentals-first strategy mirrors what many institutional funds are doing behind the scenes — reducing exposure to speculative growth and reweighting toward quality compounding value.

Historical Performance and Reputation

Morgan Stanley launched the Vintage Value list in the mid-2010s, originally as a tactical allocation guide for clients seeking equity stability amid rising volatility. Over the past decade, it has evolved into a core research framework, combining quantitative screening with bottom-up analyst conviction.

Notably, the portfolio has outperformed the S&P 500 in 7 of the last 10 years, even through diverse conditions: pandemic disruption, inflation spikes, and tech rotations. Its risk-adjusted returns (Sharpe ratio above 1.2 since inception) rival those of many active funds — a testament to its blend of discipline and adaptability.

In essence, the list represents Morgan Stanley’s flagship expression of long-term equity conviction, and its annual update has become a closely watched event among professional investors.

Should You Follow Their 2026 Picks?

Following institutional lists blindly is never advisable — but Morgan Stanley’s consistency makes it worth paying attention to. The Vintage Value approach aligns well with what seasoned investors call “compounder investing”: owning great businesses at fair prices, reinvesting dividends, and letting time do the heavy lifting.

For long-term investors:

• Yes, follow the philosophy — not necessarily every name. The focus on cash flow, ROIC, and fair valuation remains timeless.

• Expect moderate volatility. These aren’t speculative stocks, but they can underperform briefly during risk-on growth rallies.

• Reassess annually. Vintage Value is designed to evolve — what’s undervalued today may be fully priced tomorrow.

Given Morgan Stanley’s strong record and the likely continuation of a broad value rotation, their 2026 list may once again offer a roadmap for investors seeking both resilience and upside.

Final Verdict: A Proven Compass for 2026 and Beyond

Morgan Stanley’s Vintage Value portfolio has redefined what “value investing” means in the modern market — not dusty, slow-growth companies, but efficient, cash-rich businesses with durable moats and room for re-rating.

After a year of impressive performance in 2025, the strategy’s credibility has never been stronger. If the macro backdrop unfolds as expected — with rate cuts, earnings expansion, and valuation normalization — 2026 could mark the continuation of value’s long-overdue comeback.

Investor Takeaways:

1. Expect cyclical and quality compounders to feature prominently on the 2026 list.

2. Consider layering in during early-year volatility rather than chasing highs.

3. Focus on cash flow yield, balance sheet health, and sustainable margins.

4. Treat the list as a curated research tool, not a rigid portfolio.

In an era where short-term noise often drowns out fundamentals, Morgan Stanley’s Vintage Value list remains one of the most disciplined frameworks for identifying long-term winners trading at sensible prices.

For investors seeking both peace of mind and performance heading into 2026, following its philosophy — if not every pick — might just be the smartest move of the year.