What Are Core Stocks and Why Every Portfolio Needs Them
When it comes to investing for the long-term, core stocks make up the backbone of a durable portfolio. On the Jan. 5, 2026, episode of The Morning Filter podcast, Morningstar Chief US Market Strategist David Sekera answers audience questions on everything about core holdings: what they are, how they work, and where investors can find them.
Here’s an excerpt from the show.
What Are Core Stocks?
Dziubinski: Our second question this week comes from George, who asks, “Dave often mentions the term core holding. What’s the definition of a core holding? And if there’s no formal definition, what are the major traits of a core holding?”
Sekera: There is no formal definition that I can really cite specifically. But first of all, I think as an investor morning kind of your own funds, or if you’re an advisor running funds for others, before you even get into stocks that might be at core holdings, I think you should start off with just a well-diversified portfolio of equity and fixed income using broad market ETFs or mutual funds, especially those that have good Morningstar ratings, and once you have that good broad, diversified portfolio. From there, you can start adding in your individual stocks. And when I think of core stocks, these are my ones. I’d say, like the ride or die type of stocks. These are the ones that you have the most confidence in the long-term potential for the company to grow. Ones that are priced at least reasonable valuations. Yes, ideally, I’d like to get 4- and 5-star-rated stocks there. But I’m fine with buying 3-star-rated stocks, too, when I’m talking about core stocks. Specifically, what am I looking for? I’d be looking for those that we rate with a wide economic moat, those that have long-term, durable competitive advantages.
From an uncertainty perspective, looking for those that have low or medium uncertainty ratings. Depending on the sector, I am willing to go up to high, but probably not very high and certainly not extreme. Looking for companies with at least relatively strong balance sheets, investment-grade, mid-BBB, or better. I want a company that has the ability to weather any type of downturns. From the management perspective, I want a company that has a history of making wise capital-allocation decisions. Those companies that have a proven history of being able to compound capital over multiple business cycles. I’m going to exclude companies that spend a lot of money on growth capex that hasn’t panned out over time, companies that seem to overpay for acquisitions in an attempt to get additional growth. Ideally, I like a stock that pays at least a reasonable dividend, but again, that’s not necessarily a deal-killer if it has a lot of these other attributes.
Why You Can Have Confidence in Core Stocks
These are the stocks that you’re going to have the confidence to be able to add to these positions when the market’s turning down, when things are feeling really bad, everyone’s really negative. These are the stocks that you can layer into kind of those targeted positions to be able to start moving to an overweight. These are the stocks you’re going to have the confidence in, to be able to ride the ups and downs of the economic cycles, stocks that you’re willing to hold through recessions. Again, it’s once you have that portfolio of the broadly diversified ETFs and mutual funds, that’s when, I think, you can start layering in the core holdings. And then once you have those core holdings, then finally, I think that’s when you start adding in. Maybe the stocks are a little bit more fun to trade around. Those that are a little bit more speculative or story stocks. But at least still looking for those that are trading at significant margins of safety from long-term intrinsic valuation.
Subscribe to The Morning Filter on Apple Podcasts, or wherever you get your podcasts, and keep up with the latest research from hosts Susan Dziubinski and David Sekera on Morningstar.com.
