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Tom Yeung here with today’s Smart Money update.

In February 2018, the New England Patriots were on top of the football world. They’d won two of the last three Super Bowls, and star quarterback Tom Brady had just led them back to the big game once more.

He didn’t disappoint. In that Super Bowl against the Philadelphia Eagles, Brady threw for 505 yards, the most in NFL playoff history. And he did so without a single interception.

The Patriots lost anyway.

That’s because Brady’s team that year was all offense and no defense. The Patriots had let some of their best defensive players go and bizarrely benched one of their best remaining defenders.

The Eagles notched five touchdowns and three field goals against the hapless Patriots defense, outscoring Brady’s team in a 41-33 upset.

Great investors need to worry about defense, too. Those buying only high-growth, leveraged AI stocks might do well in the short term. But they can still lose if their defense isn’t solid enough.

Just ask the investors at Situational Awareness. The AI-focused fund was up roughly 270% on the year and running $45 billion in July… and then lost most of it in about three weeks, when the margin calls came and the leverage ran the other way.

In today’s Smart Money, I’d like to highlight three of these defensive bets – the kind that Eric loves to recommend.

That’s because playing defense in this market is far more exciting than you might think. These “AI Survivors” are high-growth names with plenty of upside. And they’re the ones that will keep portfolios climbing higher, even if AI companies come tumbling down.

Now, I want to note that Eric does not recommend these firms. To get Eric’s elite list of AI Survivors, you can sign up here.

But I hope that introducing these high-quality firms can help illustrate how attractive AI Survivors can be… and how they can provide solid long-term returns on par with the most aggressive offensive AI strategies.

AI Survivor Stock to Buy 1: Winning the Ground Game

Earlier this year, my neighbors installed a new in-ground pool.

They’re not alone. Since 2025, demand for in-ground pools in the U.S. has stabilized after collapsing in the post-COVID-19 years. People are getting stuck in their homes due to high mortgage rates, so they’re reopening their wallets and getting that swimming pool they’ve always wanted.

To buy into that trend, my favored pick is America’s largest supplier of in-ground pools:

Latham Group Inc. (SWIM).

Latham is an Albany, New York-based company that specializes in fiberglass pools – the type where you dig a hole in the ground and drop in a massive bathtub.

This type of construction is becoming increasingly popular. Fiberglass pools are faster and cheaper to build than the concrete “gunite” versions, and they’re much more resilient than vinyl-lined ones that start losing water with the tiniest pinhole prick.

In fact, roughly one in four pools in America is now fiberglass, up from one in six in 2019.

That’s proving to be a windfall for Latham. Fiberglass pools are gaining 1% of market share per year in America, and so Latham is growing sales at double digits even as competitors are struggling. The trend toward fiberglass is particularly strong in warm-weather states like Florida, Arizona, and California, where the market was already expanding fast.

In addition, Latham has spent the past four years building a vast nationwide supply network for fiberglass pools. It now operates nine fiberglass plants – enough to reach most of the country within two days. Its closest competitor only has two facilities, according to analysts at Jefferies, an investment bank.

That’s important because giant fiberglass pools are large, low-value freight. Factories must be located near customers to make economic sense, and Latham is now the only player in America to have a nationwide network. It also means they can offer 50+ models, compared to the 5-20 models that local players can stock.

So, I expect Latham to continue taking market share from gunite and vinyl pools (as well as from its fiberglass competitors), all while enjoying a recovery in nationwide pool construction as the post-COVID slump flips back to modest expansion.

And best of all, Latham should keep performing well, no matter how the AI boom pans out.

AI Survivor Stock to Buy 2: Going Into the Deeper End

Longtime Smart Money readers will know by now that Eric and I are bullish on energy. Roughly 40% of AI data center projects are getting delayed into 2027 because of electricity shortages. Also, there are now three separate conflicts in oil-producing areas that are squeezing global supply: Russia’s war in Ukraine, the Houthis’ closure of Bab el-Mandeb, and the war with Iran.

The world needs more power.

Most American investors are looking at domestic shale plays. Places like “the Permian” and “the Marcellus shale” are now well-known names, even if we can’t point them out on the map.

But energy companies are looking beyond these short-term plays, where wells give up 60% to 70% of their output in the first year, and breakeven oil prices hover around $65 per barrel.

They are finding these sources offshore, in deepwater wells that can last years, and where breakeven prices are usually much lower – usually in the $45 to $50 range.

Over the past several quarters, we’ve seen companies like Shell PLC (SHEL), ExxonMobil Holdings Corp. (XOM), and Chevron Corp. (CVX) double their efforts in new offshore regions, such as Guyana in South America, the Gulf, and West Africa.

And here’s the trick: These oil majors don’t build everything themselves. The large-bore connectors, subsea infrastructure, cranes, and deepwater rigs are usually bought or rented from others because they are so complex, even for companies like Chevron.

That’s why my top pick in energy today is Oil States International Inc. (OIS).

Oil States has essentially spent the past three years pivoting itself away from less profitable land-based operations to a deepwater focus. Its crown jewel is known as “offshore manufactured products,” which supplies the components these oil majors and their contractors need to drill at depths of 5,000 feet or more. I expect this segment to generate solid growth as oil companies double down on offshore drilling.

In addition, the U.S. Navy has begun buying sound- and vibration-dampening products from Oil States to outfit ballistic missile submarines. Military orders now make up 48% of the offshore segment’s $451 million backlog – the highest the company has reported in more than a decade.

This segment should continue to climb higher, especially given the competition between U.S. and Chinese submarines. Both countries are racing to build better fleets, and undersea contractors like Oil States are overlooked beneficiaries.

That means revenues at OIS should jump 10% in fiscal 2027, reversing a string of declines since 2024. And because these new businesses are so profitable, profits should double through 2027 – a feat that even the top AI firms would love to achieve.

AI Survivor Stock to Buy 3: Recovering From a Fumble

Most of you will know of discount stores like TJ Maxx, DSW Shoes, and Ross Dress for Less. These off-price retailers are highly resilient to market cycles. During boom times, they benefit from customers going on shopping sprees. And during busts, they gain from higher-income consumers “trading down” for cheaper alternatives.

My final pick is an off-price retailer for groceries.

Grocery Outlet Holding Corp. (GO) is America’s largest pure-play extreme-value grocer. It runs roughly 550 stores across the U.S. and sells closeout and surplus products for 40% to 70% discounts.

If you’ve ever wondered what grocery stores do with almost-expired products, just walk into any Grocery Outlet to find out.

Now, GO has been a bit of a mess in recent years. The company expanded too quickly, botched a 2023 systems conversion, and lost a CEO and three CFOs in the process. Management chased an expansion plan it couldn’t support and paid a steep price for its hubris.

Grocery Outlet’s new management, however, has been turning things around. In March 2026, they took a “kitchen sink” approach by closing 36 stores, liquidating stale inventory, and slashing guidance. Since then, they have embarked on a series of self-help measures to continue improving the business. This included un-retiring a star merchant to run purchasing, adding more “wow”-priced goods, and shoring up its existing stores.

The efforts have been working.

On August 12, the company announced its first “beat-and-raise” quarter in three years. Traffic rose almost 1.8%, gross margins came in ahead of expectations, net profits flipped positive, and shares jumped double digits on the good news.

I expect Grocery Outlet to keep improving from here. Other discounters like Dollar General Corp. (DG) are already noting a strong “trade down” trend among shoppers making more than $100,000 a year, and Grocery Outlet should doubly benefit, because they are also making internal improvements.

Shares are also still quite cheap; investors are valuing the firm in the rearview mirror and are pricing in no recovery. If management can get the company back to its 2023 performance, the upside here could be as much as 100%.

Changing the Game

Fortunately for New England football fans, the Patriots learned from their 2018 Super Bowl loss. In the following seasons, the team added new defensive players, overhauled their strategy, and ranked the best in the NFL in points allowed by 2019. That year, they would start with an 8-0 record simply by not allowing the other team to score more than 14 points a game.

Eric’s investment strategy is similar: You need both a strong offense and a strong defense. High-growth AI superstars paired with modest-growth AI survivors.

Now, the two sides might have little to do with each other. In fact, in football, the offensive and defensive sides of a team generally have different coaching staffs, different meetings, and different practice opponents.

But the 2018 Super Bowl reminds us that teams need both to perform well. The key is finding the right balance between offense and defense.

At Fry’s Investment Report, Eric takes that strategy further by identifying AI Survivor stocks that could help investors stay in the game, even if the AI boom takes a hit. To see which companies make his list, you can learn how to access all of Eric’s research and recommendations here. 

Until next time,

Thomas Yeung, CFA

Market Analyst, InvestorPlace