This paper focuses on the analysis of stratified steady periodic water waves that contain stagnation points. The initial step involves transforming the free-boundary problem into a quasilinear pseudodifferential equation through a conformal mapping technique, resulting in a periodic function of a single variable. By utilizing the theorems developed by Crandall and Rabinowitz, we establish the existence and formal stability of small-amplitude steady periodic capillary-gravity water waves in the presence of stratified linear flows. Notably, the stability of bifurcation solution curves is strongly influenced by the stratified nature of the system. Additionally, as the Bernoulli’s function (beta ) approaches critical values, we observe that the linearized problem exhibits a two-dimensional kernel. To address this new phenomenon, we perform the Lyapunov-Schmidt reduction, which enables us to establish the existence of two-mode water waves. Such wave is, generically, a combination of two different Fourier modes. As far as we know, the two-mode water waves in stratified flow are first constructed by us. Finally, we demonstrate the presence of internal stagnation points within these waves.