Lubin Investment · Blog

The best sectors for quality stocks in 2026

2026-06-12 ·

Out of the thousands of stocks I analyze, barely sixty earn the top quality score. Three sectors hold most of them: insurance, software and finance. That is no accident, it is tied to how these businesses generate cash. Here is what that concentration reveals.

Perfect quality is rarer than you think

When I analyze the whole market, the first lesson is humbling: flawless quality is rare. Out of thousands of companies screened, barely sixty earn my top score, 10 out of 10. That score does not reward a trendy stock. It validates an objective financial profile: profitability, cash growth, margins, buybacks, controlled debt. Most companies fail on at least one of these criteria.

The second lesson is more interesting: these rare winners are not spread at random. They cluster in a handful of sectors.

The three sectors that take the prize

Three families clearly dominate the top of my ranking: insurance, software and finance. Together they hold most of the stocks rated 10/10. Software and insurance are the two most present, followed by various finance businesses.

Why those three? Because they share one mechanic: they collect money before spending it, and put it to work in the meantime. An insurer takes premiums today and pays claims later. A software maker bills a subscription upfront, with near-zero cost to serve one more customer. A financial firm turns capital. In all three, free cash flow (the money that truly remains once bills are paid) is structurally abundant.

What the concentration does not tell you

Beware the trap. Knowing that a sector concentrates quality companies tells you nothing about their price. And that is where it gets fascinating, because these three sectors are not valued the same.

Software is often expensive: the market loves its margins, so it pays in advance. Insurance, by contrast, is often dirt cheap: the business is dry, poorly understood, exposed to disasters, hence neglected. You find insurers rated 10/10 trading at under 5 times their free cash flow, while software makers of equal quality trade at 3 or 4 times that price.

What I actually do with this

This sector map is my compass. It tells me where to look for solid companies. But I never stop there. Once quality is spotted, I ask the second question, always separate: at what price? It is this double grid, quality first, price second, that separates a good idea from a good investment.

That is exactly what I wanted to do in seconds for any stock, so I built it. You can explore the ranking of companies rated 10 out of 10, the one for undervalued stocks, and read my full methodology.

FAQ

How many stocks score 10/10?

Barely sixty out of the thousands I analyze. The top score is rare because it requires a solid financial profile across all my objective criteria, with no major weak spot.

Why do insurance and software dominate?

Because these businesses collect cash upfront (premiums, subscriptions) and reinvest it, which structurally produces a lot of free cash flow. That is exactly what my quality grid rewards.

Is a quality sector necessarily a good investment?

No. Sector quality says nothing about price. Software is often expensive, insurance often cheap. You must always cross quality with valuation before concluding.

How should I use this study?

As a compass for where to look for solid companies, then check each one's price. This is not personalized investment advice, do your own research.

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About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I have analyzed stocks through their fundamentals for several years and invest my own money with this method. I codified it into a tool that judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).