Rent or Own? How to Decide If a Stock Is a Long-Term Buy

On the Aug. 24, 2026, episode of The Morning Filter podcast, hosts Susan Dziubinski and Morningstar Chief US Market Strategist Dave Sekera answer a viewer question about what it means to rent versus own stocks. Here is an excerpt from the show.

When It Makes Sense to Rent a Stock

Susan Dziubinski: All right. Well, it is time for our question of the week. As a reminder, if you have a question for Dave, you can send it to us via our email address, which is themorningfilter@morningstar.com.

Now this week’s question comes from Philip, who has been tuning into The Morning Filter for a while. Thank you for your loyalty, Philip. Philip asks, “On the Aug. 10 episode, Dave mentioned the concept of renting stocks. Could you explore the concept further and explain where you draw the line between renting versus buy-and-hold forever stocks? What criteria do you apply? Is it the industry the company is in, the general economic cycle, or perhaps something else entirely?”

But there’s a lot in there, Philip. Dave, let’s unpack this sort of one piece by one piece at a time. First, explain what you mean when you say some stocks are better rented than owned for the long term.

David Sekera: When I think about renting a stock versus owning a stock, stocks that you want to own are those that are going to just be able to compound returns for decades yet to come. Whereas when you rent a stock, those are typically for companies where I think that the valuation and the investment thesis is temporary. Something where it’s a very cyclical industry, maybe it’s dependent on a specific catalyst. Again, something where the valuation is low now, and the market is pricing it at a discount, but this isn’t a business that you think is going to compound value for decades yet to come.

I have to admit, this is one where, as a long-term investor, renting a stock is a little bit of a gray area between trading and long-term investing. It’s not necessarily trading where you’re just looking for short-term small gains based on momentum. Again, it’s not like one of those stocks where you’re just going to buy it and put it away, and buy-and-manage for years to come.

Why Cyclical Industries Create Rental Opportunities

Dziubinski: Are there certain sectors or industries where investors would most likely rent stocks rather than own them for the long term?

Sekera: Yeah. When I think about sectors that you would prefer to rent stocks versus own, first of all, it would be any of those sectors where you see what we consider just to be a long-term structural decline. I mean, if you think about traditional media, certain types of retail, those would be areas where you might have temporary valuations get too low, but the sector overall is going to be on that long-term downward trend, which you don’t want to be involved in if you’re really going to try and buy-and-manage that stock for the long-term. In those cases, you can get bounces in stocks where the valuations fall too low, the market becomes overly negative in the short term. In that case, any kind of glimmer of a turnaround is going to send those stocks higher.

I’d also steer clear of those sectors that don’t lend themselves to developing an economic moat. Those are the type of sectors where you have mean-reverting margins over time, sectors like homebuilders, a lot of the different industrial companies. In that case, there’s going to be periods in time where a company generates excess returns, but then you don’t expect them to be able to maintain those excess returns over time. Of course, that’s when you want to buy those stocks where return on invested capital is currently low. Investors are then extrapolating those low returns into the future too far. Once you see that bottom out and then start to recover, that’s when those stocks start to rally; then, as the markets revert back to more of those longer-term types of historical returns.

Lastly, just got to be careful of any of those sectors that have a High or Very High

. Typically, those are going to be ones that are more cyclical in nature: airlines, commodities, chemicals, shipping, basic materials. Those are all sectors where I consider it better to rent when valuations and market sentiment get too negative in that case. Oftentimes you’ll see these sectors sell off too far to the downside during a recession, and then they probably oftentimes will rally too far to the upside during recoveries.

What Separates Stocks to Rent From Long-Term Winners?

Dziubinski: Dave, talk a little bit at the individual stock level then. What are some of the qualities that these stocks that you’d rent rather than own for the long term, maybe what they have in common?

Sekera: When I’m doing my screening, the first thing I’m going to look for is stocks that we rate with no economic moat within those sectors, which are also no-moat sectors. When I look at the uncertainty, I’m going to screen for those companies that we have a High, Very High, or even Extreme

on by sector. I’ll look at those that we consider to be the most economically cyclical. I also want to screen for those companies that we think have a high fixed-cost base, those that are in very capital-intensive sectors. What happens with those sectors is that because of the high fixed-cost base, that’s going to magnify losses to the downside when revenue is contracting, yet it does the opposite. It magnifies those gains when the revenue starts moving back up again.

I’ll look for companies that have what I consider to be lower credit quality, those with the low corporate credit ratings, maybe junk credit ratings, companies that have very high debt leverage, because in that case, the interest expense is going to be high; that’s going to compress margins. If it gets to be too low of a credit rating, investors might be concerned about bankruptcy risk during a recession. But then once you start to see the economy and the results turn around, that’s actually going to magnify the earnings to the upside. High debt leverage is going to magnify equity earnings to the upside as well as magnify to the downside. You’ll see much bigger swings in the performance.

And then this one, I don’t know how you necessarily really screen for. You can use some shorter-term technical indicators, but I really want to see those ones where you have just that extreme negative market sentiment where the market is looking at the stock and just saying, “Hey, this company’s just never going to make money again,” and people are just puking that stock out of their portfolios.

Lastly, take a look at the stock chart, try and identify if it looks like that stock is starting to put in a bottom. You really want to see the prior investor base washed out. Look for lots of volume, lots of turnover to the downside. Once that volume starts to even out and the stock starts bottoming out and maybe even starts having some higher lows, that’s usually a pretty good indication that that investor base has been washed out to more of a value investor base as opposed to maybe a growth investor base.

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