5 Undervalued Quality Stocks 💎
Quality growth businesses trading at historic low PE levels
Hi partner! 👋🏻
Welcome to the July edition of Top 5 Buys.
You can access our Top 25 Buys for 2026 list as a premium member here.
In this article, we will discuss our top stock picks for July 2026.
Let’s get into it 👇
The Market Sentiment: Fear
The “Fear to Greed” index is currently at 39.
This is basically the same as last month, but just with a new headline.
This time, semiconductors are getting smoked.
The market has been cautious for a while, only having brief moments in greed, and no time in extreme greed in the last 12 months.
The market is on edge. And it shows in the current earnings season. Great results with a small negative caveat? Stock is going down.
This month’s top 5 picks contains incredibly strong fundamental businesses, selling at very low prices (relative to historical points).
The price disconnect has little to do with the fundamental performances of the businesses, and more to do with the prevailing narratives in the markets.
The market is scared and uncertain, but these businesses keep delivering, and will keep delivering in the years to come.
Here are this month’s Top 5 Buys, plus a bonus 👇
This is not investment advice. Always conduct your own due diligence and make your own investment decisions.
Top 5 Quality Buys July 2026 🚀
Accenture ACN 0.00%↑ 🖥️
Accenture had its largest one-day drop in its history, on a quarter that was ok (Not horrible).
The stock dropped 18% in a single session on June 18th.
Revenue grew, margins expanded, and the company generated $3.6 billion of free cash flows.
So why did the stock fall so much?
Declining bookings (indicating negative future revenue), management cut guidance, and AI cannibalization fears - the declining bookings fed into this fear. Management had stated earlier that companies will need Accenture to installing AI for clients, but this data point was interpreted as proof of the AI narrative.
The business model
Accenture has always been the global market leader for technology consulting.
They help the best (and the biggest) companies in the world integrate new technology, set their strategy, and do the work outside of the company’s core competency.
The benefit of Accenture supporting technological integration projects is that they embed themselves into the clients operations, and switching becomes hard and painful.
This approach has served the business well.
Accenture serves clients in more than 120 countries and has ~774k employees - this creates a scale advantage that few competitors can match.
However, the market’s fear is real. If AI can do the labor intensive work, Accenture will not be able to bill hourly for that work like it has in the past.
We believe that this is true to some degree, but that the effects over the coming few years is greatly overstated.
The jury is still out on how effective AI will be for businesses, but in our experience, there is still a massive need for consultants - especially now, when things are changing more rapidly than ever.
Many companies are facing existential challenges, and need to set new strategic ways, set up their tech stack, figure out how to effectively integrate AI into their organization for it to actually drive results.
We believe that Accenture is the best positioned global consultancy business to capitalize on this, once the dust has settled.
This is a contrarian bet, the stock has sold off by -60.4% from its highs, and is trading at an 10 year low stock price.
If this bet pays off, investors will be paid handsomely.
The Financials
In the most recent quarter, revenues increased by 5.6%, EPS was up 9%, in line with expectations.
If we compare this growth to the 2023-2024 era, we can see that this is relatively solid top line growth for Accenture.
On top of that, Gross margins are holding up well. No sign of business deterioration like the stock price suggests.
But, the market is always forward looking. It does not care about the current results, if there are indications that growth will fall in the future.
And for Accenture, that is exactly what happened in the quarter.
New booking came in at $19.3 billion, and Book-to-Bill fell to 1.
Now, if you look at this going back a few years, new bookings has been much lower in previous quarters, and the Book-to-Bill ratio has been 1 multiple times.
But this time we have a nervous market, and a prevailing narrative to follow the numbers.
The ‘AI transition story’ is still intact, as management has noted +100 new advanced AI projects in this quarter alone.
Accenture is doubling down on cybersecurity by acquiring stakes in Dragos, runZero, and NetRise (All leaders in technological security). This is a major pain point for most serious businesses that is only getting worse due to AI.
Overall solid fundamentals.
The Valuation
Accenture trades at 11.48x forward earnings. The cheapest valuation in the company’s history. The average is close to 25x, and it has traded as high as +35x at one point.
This rerating assumes major AI disruption to the business, and is very pessimistic.
The FCF yield is currently at 10.97%, which is the best valuation you’ll probably see Accenture at.
The FCF margins currently sit at 17%, up more than 5% in the last 5 years - this suggests that the business is coming more capital-light in its transition and does not support the business deteriorating.
In addition, Accenture pays a ~4% dividend. It has a net cash position of $1.7 billion with $10 billion of cash. It has a ROIC 5 year average of 24.5%.
Not bad for a business trading at a +10% FCF yield.
Adobe ADBE 0.00%↑ 🎨
Steady revenue growth, solid margins, 3x in AI ARR, but a stock price down 64.1% since its 2022 highs.
In the most recent quarter, Adobe delivered revenue of $6.62 billion (+13% YoY), and raised its guidance.
The stock still trades at 9.6x forward earnings. Interesting set up.
The Business Model
Adobe’s moat is built around their creative tools being the industry standard workflow.
Their tools are used by creative and business teams to help solve business problems within design, marketing, and other visual needs.
When companies and industries makes Adobe the standard, it is hard to just switch to something else.
You have trained your staff, you have internal super users that train others, and you have built a system around these tools.
This creates a switching cost for businesses using Adobe tools.
AI is set to be a major ‘competitor’ of Adobe, but Adobe already has massive distribution.
Millions are already using their products. And Firefly, the Acrobat AI Assistant, and GenStudio are new monetization surfaces built on top of this distribution.
What Changed?
AI ARR more than tripled YoY and crossed the $500 million line.
Total ARR reached $27 billion, so it’s still small %-wise, but it shows that there is massive demand for it.
Firefly grew 4x, the Acrobat AI assistant tripled its ARR, and GenStudio grew ARR +25%.
So, why didn’t Adobe stock soar?
CFO Dan Durn announced his departure. Why is this a problem?
Because Adobe now don’t have a CEO or a CFO - the two most important positions in a business.
This creates major uncertainty for investors.
In addition, Adobe announced that it will make a strategic pivot to expanding its freemium funnel (Product-led growth).
They will also be prioritizing user and traffic growth over near-term ARR by deferring some Creative Cloud Pricing optimizations.
We’ve seen this time and time again, the market hate these kinds of trade-offs. The market rewards short-term certainty, and punishes strategic long-term bets with short-term consequences (Another example of this is MercadoLibre).
The Numbers
The stock price crash has never been about fundamentals.
Adobe is defending a ~89% gross margin (Incredible).
It is growing top-line between 10-13% steadily every quarter.
Does this look like a business falling apart?
One of the most, real, numbers to follow for Adobe, is the number of subscriptions revenue is has.
Getting more revenue from it’s customers is the best indication of your product having an organic demand in the market.
It means that you are attracting more customers (More customers are coming in than churning), and it means that your existing customers are buying more of your product(s).
When we look at the growth of subscribers, it has been higher in the past.
Regardless, the YoY growth remains in the 11%-14% range, which is solid for a business of Adobe’s scale.
I also think its necessary to look at the Q2 numbers again.
Traffic grew 35% YoY, that is significant. And 150 million MAU were gained.
Massive growth in the AI tools:
Acrobat +150% in paid MAU
Lifetime AI users in Acrobat 3x’d
Express MAU grew 20% QoQ
These are not numbers of a dying business in my book.
The Valuation
Adobe trades at a forward PE of 10x.
That is the lowest multiple in its history, by a long slide.
I don’t think we should expect Adobe to go back to its 30-35x multiple range, but assuming that Adobe can hold its competitive position and boats high margins with decent growth, a 20x multiple should be fair.
Looking at the FCF yield, it is extremely high, at 10.39%.
If we compare it to the risk free rate of 4.67%, we’re getting more than 2x the yield of Adobe.
That’s a huge risk premium for a very good business.
The current market hates uncertainty, and there are a few uncertainties for Adobe that needs to play out in the company’s favor for it to ‘turn around’.
Adobe must show that it can continue to grow and keep its market share, despite increased competition from Figma / Canva and emerging AI tools.
Adobe must get a management group in place that can set a clear strategic direction that the market believes in
Adobe must be successful in digital experiences and ‘creative AI’ to keep its competitive position, so far we don’t have enough proof of that materializing.
If it can executive like it has in the past, the upside potential is massive.
If it can’t, the multiple is likely to remain low, with slowing growth.
This is what we call execution risk, and you get paid handsomely to take it, because there is uncertainty in the investment case.
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