Which quality sector is cheapest in 2026?

2026-07-25 · By Lubin Danilo, founder of Lubin Investment

Analyze a stock on Lubin Investment

Among the 89 stocks that pass every criterion in my quality filter as of July 2026, the price paid for their cash varies enormously by sector: property and casualty insurance trades at a median of 7.1 times its annual cash, versus 64.2 times for semiconductor equipment makers, nearly nine times more expensive. Here is the full ranking and what explains the gap.

A simple question, asked across 89 handpicked stocks

My quality filter applies about ten objective criteria (profitability, cash growth, discipline on buybacks or dilution, controlled debt) to thousands of stocks worldwide, never looking at their price. As of July 2026, 89 of them pass absolutely every criterion in my model: on paper, these are the best businesses in my tracked universe, regardless of what they cost on the market today.

Once this list of 89 'model students' is established, a natural question arises: does the market price them all the same way? The answer is no, and the gap is striking. To compare their price, I use P/FCF (price-to-free-cash-flow): the share price divided by the free cash flow generated per share over the trailing twelve months, in other words the number of years of cash it would take to 'pay back' your purchase at the current rate. A P/FCF of 7 means you are paying 7 years of annual cash; a P/FCF of 60 means 60 years. Rather than the average, which can be skewed by a single extreme value, I use the median per sector: the middle value, the one that separates the cheaper half from the more expensive half of the group.

The sector by sector ranking

I deliberately restrict this to sectors with at least 3 stocks rated 10/10, so the median carries real statistical meaning: with a single representative, the 'cheapest' or 'priciest' sector in the ranking would say nothing more than the price of one single company. Even with this filter, caution remains warranted for groups of 3 or 4 names, where one unusual stock can still weigh heavily on the median.

Why property and casualty insurance is so cheap: the float mechanic

Property and casualty insurance (home, auto, natural catastrophe coverage) is structurally cheaper than nearly every other quality sector, and it is not a statistical accident. An insurer collects premiums from customers today, but only pays claims later, sometimes years later for complex cases. In between, it holds and invests that money: this is called the float. This mechanic gives insurance a different cash flow profile from other sectors, and the market, accustomed to valuing these companies on accounting earnings multiples rather than pure cash, tends to undervalue their real free cash flow generation compared to technology or industrial standards. The result: at equal quality on my filter, a P&C insurer often costs 2 to 3 times less than a software vendor.

Why semiconductor equipment makers are so expensive: a monopoly on the machine that builds chips

At the other end of the ranking, semiconductor equipment makers (companies that build the machines that make electronic chips, not the chips themselves) show a median of 64.2 times their annual cash, nearly nine times the multiple of P&C insurance. ASML Holding, the best known example in the sector, holds a near global monopoly on extreme ultraviolet (EUV) lithography machines, a technology so complex that no serious competitor has managed to replicate it for years: every leading edge fab that wants to manufacture the world's most advanced chips must, in one way or another, go through ASML.

This near technological monopoly, combined with the worldwide rush of investment into AI chip manufacturing capacity, gives the market strong conviction that these companies' growth will stay very high for many more years, which in its eyes justifies paying a far above average cash multiple today. It is the price of a nearly unassailable moat (a durable competitive advantage, literally the ditch protecting a castle), but it is also a bet on the continuation of a technology investment cycle that, like every cycle, has historically slowed down eventually.

What this ranking does not tell you

A sector that looks cheap does not automatically mean a good deal, and an expensive sector does not automatically mean overvaluation to correct: my quality filter judges the past (profitability and financial discipline over the last 5 years), not future growth, and an expensive sector may simply reflect future growth the market judges, rightly or wrongly, far superior to that of a cheap sector. This ranking should be read as a starting point to dig into EACH case individually (why this price, is it justified by the company's actual trajectory), never as a ready made conclusion like 'buy insurance, avoid semiconductors'.

Another limitation to keep in mind: several groups count only 2 or 3 companies, and the same company can appear twice under two different tickers if it is listed on multiple exchanges (this is the case for Kinross Gold in the gold sector, listed in both New York and Toronto): the real number of DISTINCT companies is sometimes lower than the number of rows in the table, a nuance to keep in mind before drawing too firm a sector conclusion from a small sample.

• 89 stocks pass every criterion in my quality filter as of July 2026, regardless of price: the neutral starting point of this study.
• Considerable price gap between sectors at equal quality: median of 7.1x annual cash for P&C insurance (8 stocks), versus 64.2x for semiconductor equipment makers (2 stocks), nearly 9 times more expensive.
• Key mechanic behind cheap insurance: the float (premiums collected before claims are paid, invested by the insurer in the meantime) gives a different cash profile, often undervalued by a market accustomed to accounting earnings multiples.
• Key mechanic behind expensive semiconductor equipment: a near technological monopoly (ASML on EUV lithography) combined with a worldwide AI investment cycle, which in the market's eyes justifies paying for very strong future growth.
• Important limitation: groups of 2-3 companies lack statistical robustness, and the same company can count twice if listed on multiple exchanges (Kinross Gold's case). This ranking is a starting point to dig further, not an automatic buy conclusion.

FAQ

Which quality sector is cheapest in 2026 according to this ranking?

Property and casualty insurance, with a median of 7.1 times annual cash across the 8 stocks rated 10/10 in the sector, the cheapest of all sectors with at least 3 representatives.

Which quality sector is most expensive in 2026?

Semiconductor equipment makers (ASML, Advantest), with a median of 64.2 times annual cash, nearly 9 times more expensive than P&C insurance, justified by a near technological monopoly and the AI investment boom.

Why does P&C insurance trade so cheap despite a perfect quality score?

An insurer collects premiums before paying claims, sometimes years later, and invests that money in the meantime (the float). This particular cash flow profile is often undervalued by a market more accustomed to judging these companies on traditional accounting earnings multiples.

Is a cheap sector always a better deal than an expensive one?

No: this ranking judges past quality (profitability, financial discipline over 5 years), not future growth. An expensive sector may reflect future growth the market judges superior. Each company needs individual scrutiny before concluding anything.

How many stocks were analyzed for this ranking?

89 stocks pass every criterion in Lubin Investment's quality filter as of July 2026, spread across dozens of sectors. The ranking is limited to sectors with at least 3 representatives, so the median carries statistical meaning.

Analyze a stock on Lubin Investment

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).