10 Best Rule Of 40 Profitable for February 2026
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Market Overview & Selection Criteria
In the current market environment, technology giants continue to dominate with strong AI-driven growth, while healthcare and semiconductor sectors show resilience amid global demand. These top stock picks were selected using ValueSense's proprietary methodology, focusing on high quality ratings (above 7.0), robust revenue growth, superior free cash flow margins, and elevated ROIC metrics. Stocks meeting the "Rule of 40" criteria—balancing profitable growth with strong margins—were prioritized, highlighting undervalued stocks based on intrinsic value estimates. This watchlist emphasizes diversification across tech, semiconductors, healthcare, and payments, providing educational analysis for retail investors seeking investment opportunities.
Featured Stock Analysis
Stock #1: NVIDIA Corporation (NVDA)
| Metric | Value |
|---|---|
| Market Cap | $4,676.7B |
| Quality Rating | 8.2 |
| Intrinsic Value | $85.9 |
| 1Y Return | 53.3% |
| Revenue | $187.1B |
| Free Cash Flow | $77.3B |
| Revenue Growth | 65.2% |
| FCF margin | 41.3% |
| Gross margin | 70.1% |
| ROIC | 161.5% |
| Total Debt to Equity | 9.1% |
Investment Thesis
NVIDIA Corporation (NVDA) stands out with a stellar Quality rating of 8.2 and a massive Market Cap of $4,676.7B. The company's intrinsic value is estimated at $85.9, suggesting potential undervaluation relative to growth trajectory. Boasting Revenue of $187.1B and Free Cash Flow of $77.3B, NVDA demonstrates explosive Revenue growth of 65.2% alongside an impressive FCF margin of 41.3%. Its Gross margin of 70.1% and unmatched ROIC of 161.5% underscore operational excellence in AI and GPU markets, positioning it as a leader in high-demand tech sectors. With a low Total Debt to Equity of 9.1% and a solid 1Y Return of 53.3%, this analysis reveals NVDA's capacity for sustained profitability.
Key Catalysts
- Exceptional 65.2% revenue growth fueled by AI chip demand
- Industry-leading 161.5% ROIC indicating superior capital efficiency
- High 41.3% FCF margin supporting reinvestment and shareholder returns
- 70.1% gross margin reflecting pricing power in semiconductors
Risk Factors
- High market cap exposure to tech sector volatility
- Potential slowdown in AI hype affecting growth rates
- Dependence on cyclical semiconductor demand
Stock #2: Alphabet Inc. (GOOGL)
| Metric | Value |
|---|---|
| Market Cap | $4,081.5B |
| Quality Rating | 7.9 |
| Intrinsic Value | $221.2 |
| 1Y Return | 68.7% |
| Revenue | $385.5B |
| Free Cash Flow | $73.6B |
| Revenue Growth | 13.4% |
| FCF margin | 19.1% |
| Gross margin | 59.2% |
| ROIC | 31.4% |
| Total Debt to Equity | 8.7% |
Investment Thesis
Alphabet Inc. (GOOGL) earns a strong Quality rating of 7.9 with a Market Cap of $4,081.5B. Its intrinsic value of $221.2 highlights value potential in digital advertising and cloud services. Generating Revenue of $385.5B and Free Cash Flow of $73.6B, the company shows steady Revenue growth of 13.4%, a FCF margin of 19.1%, and Gross margin of 59.2%. The ROIC of 31.4% and minimal Total Debt to Equity of 8.7% reflect financial health, complemented by a 1Y Return of 68.7%. This positions GOOGL as a stable value stock in technology.
Key Catalysts
- Consistent 13.4% revenue growth from search and cloud segments
- 31.4% ROIC demonstrating efficient resource allocation
- Strong 73.6B free cash flow for AI and innovation investments
- Low 8.7% debt-to-equity supporting long-term stability
Risk Factors
- Regulatory pressures on digital advertising monopoly
- Competition in cloud computing from rivals
- Slower growth compared to pure AI plays
Stock #3: Alphabet Inc. (GOOG)
| Metric | Value |
|---|---|
| Market Cap | $4,081.5B |
| Quality Rating | 7.9 |
| Intrinsic Value | $218.0 |
| 1Y Return | 67.3% |
| Revenue | $385.5B |
| Free Cash Flow | $73.6B |
| Revenue Growth | 13.5% |
| FCF margin | 19.1% |
| Gross margin | 59.2% |
| ROIC | 31.4% |
| Total Debt to Equity | 8.7% |
Investment Thesis
Alphabet Inc. (GOOG), the Class C shares, mirrors GOOGL with a Quality rating of 7.9 and Market Cap of $4,081.5B. Intrinsic value stands at $218.0, indicating similar undervaluation. Key metrics include Revenue of $385.5B, Free Cash Flow of $73.6B, Revenue growth of 13.5%, FCF margin of 19.1%, Gross margin of 59.2%, ROIC of 31.4%, and Total Debt to Equity of 8.7%. A 1Y Return of 67.3% reinforces its appeal as a core holding in stock watchlists for tech exposure.
Key Catalysts
- 13.5% revenue expansion in core advertising business
- High 31.4% ROIC for sustained profitability
- Robust cash flow generation at 73.6B annually
- Balanced capital structure with low debt levels
Risk Factors
- Shared regulatory risks with GOOGL class
- Market saturation in search engine dominance
- Economic sensitivity in ad revenues
Stock #4: Microsoft Corporation (MSFT)
| Metric | Value |
|---|---|
| Market Cap | $3,199.2B |
| Quality Rating | 7.4 |
| Intrinsic Value | $424.8 |
| 1Y Return | 4.1% |
| Revenue | $305.5B |
| Free Cash Flow | $77.4B |
| Revenue Growth | 16.7% |
| FCF margin | 25.3% |
| Gross margin | 68.6% |
| ROIC | 26.7% |
| Total Debt to Equity | 14.7% |
Investment Thesis
Microsoft Corporation (MSFT) holds a Quality rating of 7.4 and Market Cap of $3,199.2B. With an intrinsic value of $424.8, it presents a compelling case for undervalued growth stocks. Metrics feature Revenue of $305.5B, Free Cash Flow of $77.4B, Revenue growth of 16.7%, FCF margin of 25.3%, Gross margin of 68.6%, ROIC of 26.7%, and Total Debt to Equity of 14.7%. Despite a modest 1Y Return of 4.1%, its cloud and AI integrations signal long-term strength.
Key Catalysts
- 16.7% revenue growth driven by Azure and Office suites
- 77.4B free cash flow enabling acquisitions and dividends
- 68.6% gross margin from software scalability
- Solid 26.7% ROIC in enterprise tech
Risk Factors
- Recent underperformance in 1Y returns
- Increasing competition in cloud services
- Moderate debt levels at 14.7%
Stock #5: Meta Platforms, Inc. (META)
| Metric | Value |
|---|---|
| Market Cap | $1,805.7B |
| Quality Rating | 7.0 |
| Intrinsic Value | $550.8 |
| 1Y Return | 4.3% |
| Revenue | $201.0B |
| Free Cash Flow | $46.1B |
| Revenue Growth | 22.2% |
| FCF margin | 22.9% |
| Gross margin | 82.0% |
| ROIC | 26.2% |
| Total Debt to Equity | 38.6% |
Investment Thesis
Meta Platforms, Inc. (META) scores a Quality rating of 7.0 with Market Cap of $1,805.7B. Intrinsic value at $550.8 suggests significant upside in social media and metaverse plays. It reports Revenue of $201.0B, Free Cash Flow of $46.1B, Revenue growth of 22.2%, FCF margin of 22.9%, exceptional Gross margin of 82.0%, ROIC of 26.2%, and Total Debt to Equity of 38.6%. 1Y Return of 4.3% belies its recovery potential.
Key Catalysts
- 22.2% revenue acceleration from ad rebound
- 82.0% gross margin highlighting efficiency
- 26.2% ROIC in digital advertising
- Growing metaverse and AI investments
Risk Factors
- Elevated 38.6% debt-to-equity ratio
- Privacy regulations impacting user data
- Ad market cyclicality
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Stock #6: Taiwan Semiconductor Manufacturing Company Limited (TSM)
| Metric | Value |
|---|---|
| Market Cap | $1,730.0B |
| Quality Rating | 8.2 |
| Intrinsic Value | $484.8 |
| 1Y Return | 58.8% |
| Revenue | NT$3,818.9B |
| Free Cash Flow | NT$1,019.8B |
| Revenue Growth | 31.9% |
| FCF margin | 26.7% |
| Gross margin | 59.9% |
| ROIC | 38.2% |
| Total Debt to Equity | 18.2% |
Investment Thesis
Taiwan Semiconductor Manufacturing Company Limited (TSM) achieves a top Quality rating of 8.2 and Market Cap of $1,730.0B. Intrinsic value of $484.8 points to value in chip foundry leadership. Figures include Revenue of NT$3,818.9B, Free Cash Flow of NT$1,019.8B, Revenue growth of 31.9%, FCF margin of 26.7%, Gross margin of 59.9%, ROIC of 38.2%, and Total Debt to Equity of 18.2%. A 1Y Return of 58.8% underscores semiconductor demand.
Key Catalysts
- 31.9% revenue surge from advanced node tech
- 38.2% ROIC in global foundry market
- Strong 26.7% FCF margin for expansion
- Key supplier to AI leaders like NVDA
Risk Factors
- Geopolitical tensions in Taiwan
- Currency fluctuations in NT$ reporting
- Capex intensity in semis
Stock #7: Broadcom Inc. (AVGO)
| Metric | Value |
|---|---|
| Market Cap | $1,574.3B |
| Quality Rating | 8.2 |
| Intrinsic Value | $131.5 |
| 1Y Return | 53.6% |
| Revenue | $63.9B |
| Free Cash Flow | $26.9B |
| Revenue Growth | 23.9% |
| FCF margin | 42.1% |
| Gross margin | 67.8% |
| ROIC | 18.3% |
| Total Debt to Equity | 80.1% |
Investment Thesis
Broadcom Inc. (AVGO) features an 8.2 Quality rating and Market Cap of $1,574.3B. Intrinsic value at $131.5 indicates undervaluation in networking chips. Data shows Revenue of $63.9B, Free Cash Flow of $26.9B, Revenue growth of 23.9%, FCF margin of 42.1%, Gross margin of 67.8%, ROIC of 18.3%, and higher Total Debt to Equity of 80.1%. 1Y Return of 53.6% reflects acquisition-driven momentum.
Key Catalysts
- 23.9% growth from VMware integration
- 42.1% FCF margin for high profitability
- Essential in AI data center infrastructure
- 67.8% gross margins in semis
Risk Factors
- High 80.1% debt from acquisitions
- Integration risks post-mergers
- Semiconductor cycle exposure
Stock #8: Eli Lilly and Company (LLY)
| Metric | Value |
|---|---|
| Market Cap | $928.7B |
| Quality Rating | 7.9 |
| Intrinsic Value | $276.8 |
| 1Y Return | 26.2% |
| Revenue | $59.4B |
| Free Cash Flow | $9,020.7M |
| Revenue Growth | 45.4% |
| FCF margin | 15.2% |
| Gross margin | 83.0% |
| ROIC | 36.0% |
| Total Debt to Equity | 178.2% |
Investment Thesis
Eli Lilly and Company (LLY) boasts a 7.9 Quality rating and Market Cap of $928.7B. Intrinsic value of $276.8 highlights pharma value. Metrics: Revenue $59.4B, Free Cash Flow $9,020.7M, Revenue growth 45.4%, FCF margin 15.2%, Gross margin 83.0%, ROIC 36.0%, Total Debt to Equity 178.2%. 1Y Return of 26.2% ties to blockbuster drugs.
Key Catalysts
- 45.4% revenue boom from GLP-1 drugs
- 83.0% gross margin in biotech
- 36.0% ROIC on pipeline success
- Healthcare sector tailwinds
Risk Factors
- Very high 178.2% debt-to-equity
- Patent cliffs on key products
- Regulatory hurdles in pharma
Stock #9: Visa Inc. (V)
| Metric | Value |
|---|---|
| Market Cap | $628.1B |
| Quality Rating | 7.5 |
| Intrinsic Value | $150.2 |
| 1Y Return | -5.9% |
| Revenue | $41.4B |
| Free Cash Flow | $22.9B |
| Revenue Growth | 12.5% |
| FCF margin | 55.4% |
| Gross margin | 79.1% |
| ROIC | 39.1% |
| Total Debt to Equity | 54.6% |
Investment Thesis
Visa Inc. (V) has a 7.5 Quality rating and Market Cap of $628.1B. Intrinsic value $150.2 signals payments opportunity. Includes Revenue $41.4B, Free Cash Flow $22.9B, Revenue growth 12.5%, top FCF margin 55.4%, Gross margin 79.1%, ROIC 39.1%, Total Debt to Equity 54.6%. 1Y Return -5.9% offers entry amid recovery.
Key Catalysts
- 55.4% FCF margin from network effects
- 39.1% ROIC in transaction processing
- Digital payments growth globally
- Resilient 79.1% gross margins
Risk Factors
- Negative 1Y return signals caution
- Competition from fintech disruptors
- Economic slowdowns hitting spending
Stock #10: ASML Holding N.V. (ASML)
| Metric | Value |
|---|---|
| Market Cap | $559.0B |
| Quality Rating | 7.8 |
| Intrinsic Value | $914.1 |
| 1Y Return | 93.4% |
| Revenue | €31.4B |
| Free Cash Flow | €10.7B |
| Revenue Growth | 11.0% |
| FCF margin | 34.1% |
| Gross margin | 53.1% |
| ROIC | 28.2% |
| Total Debt to Equity | 13.8% |
Investment Thesis
ASML Holding N.V. (ASML) scores 7.8 Quality rating with Market Cap $559.0B. Intrinsic value $914.1 points to lithography monopoly value. Reports Revenue €31.4B, Free Cash Flow €10.7B, Revenue growth 11.0%, FCF margin 34.1%, Gross margin 53.1%, ROIC 28.2%, Total Debt to Equity 13.8%. Exceptional 1Y Return 93.4% driven by chip tools.
Key Catalysts
- 93.4% 1Y return from EUV demand
- 28.2% ROIC in semiconductor equipment
- 34.1% FCF margin for R&D
- Strategic role in advanced chips
Risk Factors
- Export restrictions to China
- Cyclical semi equipment orders
- Euro-denominated financials volatility
Portfolio Diversification Insights
This stock watchlist offers balanced exposure: heavy in technology (NVDA, GOOGL/GOOG, MSFT, META ~60% allocation) for growth, semiconductors (TSM, AVGO, ASML ~25%) for AI infrastructure, healthcare (LLY ~10%) for defensive innovation, and payments (V ~5%) for stability. High-quality ratings (avg. 7.8) and ROIC above 25% across most enable synergy—tech leaders like NVDA pair with suppliers TSM/ASML, while LLY diversifies cyclical risks. Low average debt (except LLY/AVGO) supports resilience; combine for best value stocks portfolio reducing single-sector volatility.
Market Timing & Entry Strategies
Consider entry during tech pullbacks or semi cycle upswings, targeting intrinsic value discounts >20%. Dollar-cost average into high-growth names like NVDA/TSM amid AI news; watch for LLY catalysts like drug approvals. Monitor ROIC trends and FCF for confirmation—avoid chasing 1Y peaks (e.g., ASML's 93.4%). Use ValueSense tools for real-time intrinsic value updates to time positions educationally.
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FAQ Section
How were these stocks selected?
These top stocks to buy now were chosen via ValueSense's Rule of 40 framework, emphasizing quality ratings >7.0, high revenue growth, FCF margins >15%, and ROIC >25%, focusing on undervalued stocks per intrinsic estimates.
What's the best stock from this list?
NVDA leads with 8.2 quality rating, 161.5% ROIC, and 65.2% growth, though ASML's 93.4% 1Y return and TSM's foundry dominance also shine—selection depends on portfolio needs.
Should I buy all these stocks or diversify?
Diversification across tech, semis, healthcare, and payments mitigates risks; allocate based on sector weights rather than equal-buying for balanced investment opportunities.
What are the biggest risks with these picks?
Key concerns include high debt (LLY 178.2%, AVGO 80.1%), geopolitical issues (TSM/ASML), regulatory pressures (GOOGL/META), and sector cyclicality—monitor via ValueSense metrics.
When is the best time to invest in these stocks?
Optimal during market dips when prices approach intrinsic values (e.g., NVDA at $85.9), aligned with catalysts like earnings beats; use ongoing analysis for timing.