Key Takeaways
- What to know after last week’s tech selloff.
- What to watch when Apple AAPL, Palantir PLTR, Clorox CLX and Arm Holdings ARM report earnings this week.
- Why Alphabet GOOGL/GOOG dropped 12% after reporting its third-quarter results.
- Is Amphenol APH still a buy after earnings?
- What to know about core holdings and how to manage them in your portfolio.
- Stocks to buy and sell for the month ahead.
In this new episode of The Morning Filter podcast, co-hosts Dave Sekera and Sarah Hansen discuss last week’s market activity and the major selloff in technology stocks. They also cover what investors need to know after the October Federal Reserve meeting. They unpack another busy week of earnings, including upcoming reports from Apple, Palantir, Clorox, and Arm Holdings.
Tune in to hear Morningstar’s take on Alphabet’s selloff after earnings, along with key considerations for investors after reports from Microsoft MSFT, Amazon AMZN, L3Harris LHX, and more.
Sekera and Hansen also cover what investors need to know about core holdings, including the qualities core stocks have in common and how to manage core positions in a portfolio. They wrap the show with three stocks to sell and three stocks to buy for November.
Got a question for Dave? Send it to themorningfilter@morningstar.com.
Transcript
Sarah Hansen: Hello, and welcome to The Morning Filter podcast. I’m Sarah Hansen, sitting in for Susan Dziubinski, who’s on leave for a few more weeks. I’m here on Monday mornings to talk with Morningstar chief US market strategist, Dave Sekera, about key takeaways for investors in today’s market, what to keep on your radar this week, some new Morningstar research, and of course, a few stock ideas. Hey there, Dave, good morning.
Sekera: Good morning, Sarah. How are you doing?
Hansen: I’m doing great. I got an extra hour of sleep. I don’t know about anyone else, but I slept great.
Tech Earnings Selloff
Well, we had a pretty kind of dramatic end of the week last week, didn’t we? Let’s start in the stock market. Walk us through what happened. What had investors so spooked that we were seeing all that red in the charts?
Sekera: Nice use of the word spooked going into Halloween.
Hansen: Thank you. Thank you.
Sekera: Yes. No, it’s just, what happened was all of the AI stocks really got hit from multiple different angles. Taking a look at the different stocks that reported that week, you had Alphabet GOOGL, that’s the parent of Google. They missed consensus expectations on both the top and bottom line. And then Amazon AMZN came out. They also missed on the top and bottom line. Both of those misses really raised a lot of concern among investors that these companies might not necessarily be able to start monetizing just the vast amounts of money that they’re spending on capex as quickly as what people originally thought.
Then, among the semiconductor stocks, Intel INTC came out. Now, they actually beat expectations, but the stock just got walloped. And really what happened there is that they had much weaker-than-expected guidance, and that led to fears that the data center buildouts may be less than what’s currently contemplated. That brought down all the other semiconductor names, including Nvidia NVDA and AMD AMD. And then lastly, we had some of the commodity-oriented technology hardware companies report. For example, you had SanDisk SNDK. Again, they also beat consensus expectations, but the numbers that they provided failed to live up to even what was higher expectations in the market. That stock just got hammered and that pulled down all of those commodity-oriented tech names.
To some degree, I think it’s what you and I have already been talking about for the past couple weeks anyways. I think the market is just becoming more and more interested in how companies are actually utilizing AI as opposed to just building AI. In this case, if the monetization of AI is slower than what’s expected and you’re not going to be able to generate those returns that people are expecting on these names, then yes, a lot of these stocks, especially those commodity-oriented tech names, are overvalued.
Anthropic IPO Update
Hansen: Thanks, Dave. Yeah, it is very interesting to watch that story unfold kind of week after week in real time. We have a lot of earnings on our docket for this episode, another marathon, and I know we’ll get into this story a little more when we get there, but let’s stick with AI for just a minute. Right after we filmed our episode last week, we got a very highly anticipated public filing from Anthropic, their S-1 ahead of their listing. I know we had a ton of details in there and our analysts are working through it, but for now, what should investors know?
Sekera: Well, exactly. We do have our analyst team working on coming up with a valuation for Anthropic. I think pricing is expected in the first half November. I think our valuation, we’re hoping to get that out as early as we can here in November. When we do, I’ll record a podcast with the analyst. We’ll do a deep dive into his projections once he’s published his valuation. So, be on the lookout for that coming up. The only real takeaway I have at this point since we don’t have a valuation is I know that there’s been a lot of commentary in the marketplace about the company looking for a $2 trillion valuation. I don’t know exactly how much of that company they plan on IPOing. A lot of times it’s only like a 5%, not necessarily a huge percentage of the company, but at a $2 trillion valuation, 5% is still $100 billion. I’m curious, where’s $100 billion of cash going to come from in order to be able to buy that stock? Again, we’ll see.
Fed Meeting Takeaways
Hansen: We will see. That is a very big number and I’m really looking forward to your deep dive. Before we turn ahead to earnings, we shouldn’t forget a recap of the Federal Reserve meeting that we had last week. Not many surprises on interest rates. They left rates unchanged as they were widely expected to do, but we did get some new commentary from Chair Kevin Warsh. What are the important takeaways there?
Sekera: I don’t know what the important takeaways were, honestly. I tried to listen to the press conference, and after a while he just ended up sounding like the teacher from the old Peanuts cartoons. I heard a lot of words, very little detail. I mean, the only thing that could be a notable change, which I don’t think is a notable change, is that in 2027, they’re still going to have eight meetings, but now one of those is going to be what he calls a strategy meeting. There’s not going to be any policy change or statement. It’s much more intended to be more longer-term discussions about what’s going on with monetary policy and the economy. We’ll see. I mean, the other seven meetings will still be policy meetings, so there will still be live potential changes to monetary policy and the statement. But honestly, I don’t think it really changes anything at all. I mean, even if one of these is a strategy meeting, depending on what’s going on in the world at that point in time, I still think that they’re going to act when and if needed.
Earnings Watch: AAPL
Hansen: Great. It’s been interesting to watch the market kind of get its arms around this new leadership and figure out what’s signal, what’s noise, what’s words, what’s not. So, one to watch in December. Stay tuned, I guess. All right, onto earnings. We are still in the thick of third-quarter earnings season. We’ve had more than half the S&P 500 report already and plenty more to come this week. I suspect Wall Street will be watching very, very closely given what we saw on Thursday and Friday of last week. Let’s start with Apple. Morningstar assigns a $290 fair value to that stock. What’s the story for Apple ahead of earnings?
Sekera: Well, the stock’s performed very well here going into their earnings report. To some degree, I think with Apple, the reason it’s performed so well is it’s been able to benefit from the non-AI or the “anything but AI” trade. The reason being Apple really hasn’t spent that much money on building out AI like a lot of these other companies have. To some degree, I think people look at Apple right now as being a tech stock without the AI downside risk.
Now, having said that, it might be a pretty tough quarter for them. The things I’ve been hearing is that the uptake on the new iPhone are pretty sluggish. Had a lot of reports out there, problems with the new iPhone Duo, that’s the foldable phone, having problems with cracking and other issues. So, I don’t know; it’s a 2-star-rated stock trading at a 19% premium. Stock’s gone up a pretty good amount going into earnings. I think there’s a lot of risk in this one.
Earnings Watch: PLTR
Hansen: OK. Next up on your list is Palantir. Now, this was a pick of yours over the summer and has had a really great run since then, all the way up from undervalued now to kind of pretty overvalued with the rating of 2 stars. Is there any upside left in that stock?
Sekera: We shall see. So, yes, we recommended it on the June 29 episode of The Morning Filter. It’s up about 60% since then, but now the stock is trading at a 20% premium to our fair value. Now, when I think of Palantir, I really think of this one as being the poster child for actually being able to utilize Big Data and artificial intelligence.
Right now it is a 3-star-rated stock, but it’s really at that upper end of that 3-star range. In fact, it was a 2-star stock before the big market selloff at the end of last week. Essentially, I think that with that stock trading that high, we would need to see really something that would cause us to go back and change our forecast, our longer-term forecast on this company, in order to raise our fair value. Otherwise, if we’re not making a fair value and really a pretty big bump up in the fair value change, I think now’s probably a pretty good time to take some profits on that position with as much as it’s run. I would have a hard time seeing us really make that big a change to the upside unless they come out with just guidance that we just hadn’t been contemplating.
I took a quick look at the model over the weekend. We’re already forecasting just some huge growth over the next couple of years. Our five-year compound annual growth rate for revenue is 46%. Essentially, we’re looking for $8.5 billion of revenue in 2026, going all the way up to $30 billion in 2030. And for it to continue to grow, I mean even at a 20% rate thereafter, as far as earnings go, the five-year compound annual growth rate is 49%. We’re looking for $1.53 in 2026, which puts the stock at 127 times earnings; even using $2.08—that’s our estimate for 2027 earnings per share—still trades at 94 times. Even in 2030, where we’re expecting $4.67 in earnings, it’s still trading at 42 times. This is, granted, a high-growth stock, but it is a very expensive stock nonetheless.
Earnings Watch: CLX
Hansen: All right. Well, on the other side of the coin there, we have Clorox, which is trading at a really big discount. What are you watching for there in their results?
Sekera: Yeah, so Clorox is still at a 43% discount to our long-term intrinsic valuation, more than enough to put it into 5-star territory. Essentially, all I really am looking for for this company is just signs of normalization in their sales trends, looking for a slight rebound in operating margins so that we can really get that confidence that they’re going to start going back up toward the long-term normalized trends. When I take a look at our model, we’re forecasting an operating margin for fiscal 2027 of 15.1%. That’s a pretty good expansion from what they posted last year, which is only 14.4%, but yet we’re still only projecting that to be well below the eight-year prepandemic average, which was 18.1%. Stock only trades at a 14-times forward earnings multiple. To me, I think if we get any kind of indication that things are starting to normalize here, I think there’s a lot of upside in this one.
Earnings Watch: ARM
Hansen: All right, great. Last up on our docket is Arm Holdings. This is a chip designer, and it’s lost roughly half its value since the summer. What will you want to hear about when they report this week?
Sekera: Yes, that stock peaked in June at $440 a share. It’s down over 50%. Now, it’s a 3-star-rated stock, but same thing as what we talked before. It’s 3 stars, but it’s right at that top of that 3-star-stock range. In fact, I think it was also 2 stars not that long ago. In this case, the company makes, or designs, or they utilize their software for CPUs, which are used in the AI ecosystem. That part of their business should be performing exceptionally well. But when you think about the guidance that we got from Intel, I think there’s going to be a lot of concern with ARM regarding their non-AI business. If you think about where else their software is used in semiconductors—whether it’s smartphones, tablets, PCs, electronics—all of those are under so much pressure right now because the cost of the memory on those products has really pushed those prices up on the products. And so, we’re just seeing a falloff in demand.
Is MSFT a Buy After Earnings?
Hansen: OK. Another one to watch. Let’s pivot over now to some new research. This is the beginning of our earnings recap marathon. Are you ready?
Sekera: Sure, let’s do it.
Hansen: We’ve got a lot of names. OK. First up, we’ve got a bunch of hyperscalers, including Alphabet and Amazon, which you mentioned up top, but why don’t we start with Microsoft? What was Morningstar’s take on that report?
Sekera: Overall, the earnings report was actually pretty good. In fact, the stock initially started to trade up, but then it just got pulled down after Google’s numbers ended up coming out. Overall, top-line revenue was up 19%. Azure, their data center business, up 45%, and even Microsoft 365 was up a strong 18%. Now, we made a couple of revisions to our model. We are now looking for a little bit faster, like short-term and medium-term growth, but we ended up offsetting that by now expecting even higher expenses and cash flow pressure for even longer. Really, no big change in our fair value overall here.
Looking forward, we’re still looking for just continual acceleration in that Azure business, looking for 50% growth that’s up from 45%. Still no change. I mean, what we’ve talked about Azure for a while, it’s still capacity constrained. They’re still able to grow the revenue there as fast as they’re able to bring new capacity online. Still see that for the foreseeable future. As far as capex goes, their 2027 capex, we’re looking for $170 billion to $175 billion. It’s a big bump up from 2026, which was only $116 billion. In fact, if you look at 2028, we’re now forecasting $230 billion in capex spending. Again, that’s really going to pressure their cash flow for a while until they can start monetizing all of that AI capex spending.
Now, taking a look at the stock, this stock has now pretty much round-tripped the entire SaaS-pocalypse. This stock was about $550 a share about a year ago, bottomed out at $350, and we kept mentioning how we thought this one was significantly undervalued and was rated 5 stars. It’s now back up to $530 a share, no change to our $600 fair value. It’s still a 3-star-rated stock, but it is at a 13% discount. If it were to fall much from here, that would put it back into 4-star territory. I don’t know. Just overall, when I think of Microsoft, I like their business setup. They’re not a one-trick pony. They have a lot of different ways that we think that they’re going to monetize and utilize artificial intelligence over time. I still consider Microsoft to be a core holding type of stock for most accounts.
GOOGL Earnings Selloff
Hansen: All right, great. Moving on to Alphabet. This is one of the ones that sold off really, really sharply after earnings; I think more than 12% on the day on Thursday. Tell us what the market was responding to there and what’s Morningstar’s take?
Sekera: Well, I mean, it’s a big surprise that they missed on both the top line and the bottom line. So, just walking through the numbers here, I mean, the numbers in and of themselves were pretty good. Revenue was up 25%. Their operating margins expanded by 130 basis points to 31.8%. Google Cloud grew over 100%. It now constitutes 24% of the revenue of the company. That’s up from only 15% a year ago. But the problem came in on the search side of their business that came in at only a 12% growth rate that was expected to be a 17% growth rate.
I think that’s what really caused the stock to tank because there’s a lot of concern that AI is now eating away at their search business. You have AI overviews, their AI mode. I mean, those are growing as a percentage of their total search queries overall, and so people are concerned that by using those, they’re not able to monetize that part of the business for advertising. Now, from our point of view, our analyst, he’s really not necessarily that concerned about this in the short term. He’s noted, I mean, one thing that Google knows how to do is to be able to figure out how to monetize its products. It has a long history of doing that. Even if they’re not necessarily generating as much revenue on AI usage now, we do think that they will be able to figure that out going forward.
Just taking a look at some of the other parts of their business, I mean that Google Cloud business is still expected to generate just crazy growth going forward, especially since now they’re starting to sell those TPUs instead of just renting them out. We made a couple of changes to our model and we actually went the other way. While the market sold off as much as it did, our analysts raised our fair value to $450 a share, up from $433.
Overall, we think the market’s underappreciating the rapid growth in Google Cloud, and we still think that among all of the AI companies that they’re in still the better position type of spots. They have good vertical integration. We think that provides a better cost structure than a lot of others, and they have a lot of in-house things going on, like their TPUs, their own AI model; they’re co-designing hardware and software. We think that helps them minimize costs and put them in a better cost position than their competitors.
AMZN Earnings Recap
Hansen: Great. Thank you. And now, Amazon, which also got caught up in that selloff. What did we learn there?
Sekera: Yeah, so Amazon’s third-quarter revenue, respectable, was up 12%. Their operating margin reached 13.9%. Overall, our analyst thought guidance was roughly in line with his expectations. Now, AWS came in at 39%. That’s up from 37% last quarter. Management expects that to grow slightly over 40% in 2027 and 2028. But in my opinion, that seems to be a slower growth rate than what we’re seeing from other hyperscalers. That might’ve been one of the issues on this stock. Taking a look at their capex spending, they’re expected to spend $220 billion this year. For 2027, they characterized AI spending as meaningfully more compared with 2026. That just is going to keep the free cash flow negative for even longer. I think that’s another problem with this stock.
Overall, we did make a couple of revisions to our model, just really incorporating the fact that they’re going to have to spend an increasing amount of capital on their business and continually reinvest in the business for artificial intelligence longer than what we had in there before. And that resulted in lowering our fair value to $280 a share from $300.
Is APH Still a Buy After Earnings?
Hansen: OK. Let’s go one step beyond the hyperscalers now. We can take a look at Amphenol. This is one of those AI “picks-and-shovels” companies that we talked about last week as a good buy to take advantage of this buildout boom. But you did caution that it might be a good idea to wait until after earnings before changing a position in that stock. Where did we land, and does Amphenol still look attractive to you after earnings?
Sekera: Yeah, I mean, it was a very strong quarter. They beat both top line and bottom line by quite an amount. Revenue up 65% year over year. Now that’s a total year-over-year increase. Organically, if you strip out some of their acquisitions, it was still up 37%. Big top-line growth, and, of course, with that fixed-cost leverage, you get good operating margin expansion. The op margin expanded 220 basis points to 29.7%. That’s a record-high margin for them. It looks like, based on their guidance, that they’re still looking for even further strength going into the fourth quarter.
As you noted, this has been our go-to stock to try and play the commodity-oriented tech hardware. Most of those other stocks we think had run up way too far, way too fast. In fact, most of them have been on a pretty downward trend ever since June. I think our first recommendation on this stock was on the May 11 Morning Filter. It’s up 30% since then. We maintained our $100 fair value, so at the 21% discount, still more than enough to put it in 4-star territory.
Healthcare Earnings: GEHC, BIIB, BMY
Hansen: Great. So, it sounds like yes. Sounds like still a buy after earnings. All right, let’s pivot out of tech. Take a breather. Why don’t we talk about healthcare? What did we learn from GE HealthCare GEHC? I know this stock has been a pick of yours more than once.
Sekera: Yeah, so we recommended it a couple of times. First on Oct. 6, 2025, and again on the March 30, 2026 episodes of The Morning Filter. Now, there was a big selloff in the stock in April, and it dipped all the way down into 5-star territory, but it’s been recovering ever since and looks like it’s getting good traction. In fact, the stock was up 7% after earnings.
Taking a quick look at the results here, revenue is up 6.2% year over year. Management raised their revenue guidance to 4%. That’s the high end of their prior guidance range, which was three to 4%. Operating margin expanded 180 basis points to 16.6%. We expect even further expansion yet to come. Overall, we maintained our fair value at $88 a share. It’s a 13% discount, just enough to put it in 4-star territory. I think it’s a pretty reasonable valuation. The stock trades just below 15 times our 2027 earnings estimate, which is $5.09 per share.
Hansen: Great. Let’s stay in healthcare and let’s talk about Biogen BIIB.
Sekera: Revenue is up 11% year over year. Management has enough confidence they were able to narrow their earnings guidance to $15.95-$16.75. That’s tighter than what their prior range was, which was $15.85-$16.85. And the stock, using the midpoint there, just trades, I think, just a hair above 15 times earnings. Our $220 fair value is unchanged. It’s currently a 3-star stock at a 15% premium. Typically, at a 15% premium, maybe you want to start thinking about taking some profit there. I just note we do have a couple of catalysts here. We have a phase 3 readout coming in December; several more in 2027. If we got good news from those phase 3 readouts, that could provide further upside from here.
Having said that, we did recommend this stock on Aug. 4, 2025. It’s up 92% since then. So, at the same point in time, I don’t know, with that kind of return since then, and it is trading at a premium, maybe now’s a good time to at least take some of those profits off the table and maybe keep some of the position just to see what happens with those phase 3 readouts and whether there is some more upside. But if there isn’t good upside coming from those, at least you’ll have locked in a pretty good amount of that 92% return.
Hansen: OK, fantastic. Last up in healthcare is Bristol-Myers Squibb BMY on a recent pick. What did you learn there? How do you feel about the stock?
Sekera: This, to me, was actually kind of an odd quarter. They had good revenue growth that was up 7%, and management raised their 2026 revenue guidance to $50.0 billion from $49.5 billion. But unfortunately, we saw earnings decline, and management lowered their earnings per share guidance to $6.45 at the midpoint to factor in, I’m assuming, some additional costs from some acquisitions.
Still, the stock’s only trading at 9.5 times earnings. I think, to some degree, the market’s still in this wait-and-see mode. They’re waiting for additional data to come out on some of the drugs in their pipeline. They want to have the confidence that as those drugs get approved, that they’re going to be able to offset some upcoming patent cliffs on a couple of other drugs that are coming here in the near term.
Overall, we do have a differentiated view on this one. I mean, this has been our go-to stock for the pharma industry for quite a while. We think their pipeline is underappreciated by the market. I think if we did see any positive results coming out from some of the data for two different drugs that’s coming, I think in December in the first quarter of 2027, there could still be some further upside from here, but for now our fair value is $70 a share. It’s a 4-star-rated stock, 11% discount. I think it’s up 25% since we first started talking about this one in mid-2025. At the same point in time, not only have you gotten that premium or that increase in the stock principal, we’ve also been able to clip over a 4% dividend yield for that same point in time.
LHX Earnings Recap
Hansen: OK, fantastic. Should we switch gears? Defense stocks? All right, so we have L3Harris LHX next up. This was a new pick of yours a couple of weeks ago, and when we talked about it, you mentioned that you thought they were pretty well positioned to take advantage of changes in defense spending that might be coming over time, and you liked that they had a little bit more in the way of margin expansion compared with some of those other bigger companies like Lockheed Martin LMT. Is that still your view after earnings last week?
Sekera: Nope, you got it. We can just move on from now.
Hansen: Oh, OK. Sorry.
Sekera: No, all kidding aside. Yeah. I mean, results were very good. They beat top line and bottom line. The stock is up 7% after the earnings number. Their revenue is also up 7%. The operating margin expanded like we expected. For those of you that maybe missed the episode that we talked about this company, they focus on uncrewed aerial vehicles, sensors, avionics, space-based systems, missiles, solid rocket motors—all things that seem like they’re going to be an increasing part of what the defense setup needs to be as we’re seeing warfare start to evolve. The thing that really works for the stock is because the company is a lot smaller than a Lockheed or Northrop NOC, they have the ability that increases in those type of products is a larger percentage of their overall revenue. I think they’re going to get a lot of good upside revenue, a lot of good upside margin because of the change in how warfare is conducted and that their products really line up with that.
ICE: Still Undervalued?
Hansen: All right, great. Sorry to steal your thunder at the top there, Dave. OK, last one in our marathon is Intercontinental Exchange ICE, new industry, another former pick. How does that one look after earnings?
Sekera: Yeah, this one’s been a pick several times this year. It’s been, I would call it, a solid performer. Revenue is up 15% year over year, earnings per share up 18%. I’d say overall, no change to our investment thesis or to our model. Longer term, we think the energy futures business benefits from long-term secular trends. Overall, we’re still with the data center buildout, looking for rising demand for electricity. I think that there’s still a long runway for liquid natural gas, so we see a lot of good positive tailwinds behind us.
In my mind, I think this was another example of a stock that got caught up with the SaaS-pocalypse. Everyone had thought that AI was going to take a lot of these companies down; it’s going to disrupt or displace their business. We didn’t think that was going to happen. So, this stock also now has recovered close to where it was a year ago. Following earnings, our fair value is unchanged at $183 per share. It’s at an 8% discount. It’s a Low Uncertainty stock. Because it’s a Low Uncertainty, we have a very narrow range around our intrinsic value, so that 8% is enough to put it in 4-star territory, and it trades at a pretty reasonable multiple in today’s market, at 21 times earnings.
Core Holdings: What to Know
Hansen: Great. Thank you so much, Dave. That was a big recap. Now it’s time for our question of the week. As a reminder, if you have a question for The Morning Filter, you can email us at themorningfilter@morningstar.com. Now, this week’s question is about core holdings, which have actually already come up today when we were talking about Microsoft earlier, but let’s talk about what core holdings are, what qualities they share, and how investors should think about managing these types of positions. I mentioned that we said it earlier and I have a preview that is going to come up later, so it’s a great thing to talk about. Why don’t you walk us through the basics?
Sekera: Yeah, and it’s been a while since we’ve talked about, or at least my own personal view on investing. When I think about investing overall, you want to have an idea of what your own personal risk tolerances are, and that’s going to help guide you how much you want in fixed income, how much you want within the equity, and within the equity portion of your portfolio, I think you want to have good diversification to start. I think the best way to do that is some good broad ETFs, mutual funds, and of course, you can use Morningstar products in order to look for very good funds and ETFs.
Once you have that basis of your portfolio, that’s when I think you start moving into individual stock selection. When you start with the individual stock selection, I think you want to start off with stocks that I call those core holdings as the basis of the individual stock part of your portfolio. These are the kind of stocks that I think you want to own no matter what part of the economic cycle, no matter what part of the business cycle or even the market cycle we’re in. These are the ones that you would have enough confidence in that if they’re selling off, whether it’s idiosyncratic and that individual stock itself is just selling off, or if the entire market is coming down, these are the ones that you’re going to dollar-cost average in to the downside. These are the companies that you’re going to have the confidence in that they’re going to be the survivors no matter how severe of a recession we may have, but at the same point in time, they’re also the companies that thrive during expansions.
I start off looking for what I consider high-quality companies, look for those that we rate with a wide economic moat. I also take a look for those companies that we rate with a Low or Medium
. Depending on the sector, I’ll also look at High Uncertainty Rating stocks. For example, in the tech sector, very difficult to find a Low or Medium Uncertainty just naturally because of that sector, they’re all going to be High Uncertainty stocks. I also like core holdings to have a pretty decent dividend yield, so I’d like to get paid while you wait. I mean, if we go into a market where maybe it’s a down market, and you don’t want to sell anything, or maybe a market where it just kind of goes nowhere for a long period of time, at least you can be capturing that dividend yield.
Again, I think with a core position, just like any stock position, I think you start with a partial position. The first thing you want to decide is how large of a position do I want to have in any one individual stock as a percentage of my overall portfolio? When you buy that stock, maybe you start with a half, maybe two-thirds, but you want to leave some dry powder so that way if it sells off, you’ve got that capital to be able to put it to work, to dollar-cost average into the downside. These are also stocks I think are typically going to be less volatile. They’re not necessarily trading stocks and they’re not stocks to rent. When they’re 4- and 5-star, you want to dollar-cost average into the downside, but at the same point in time when they do move into 2-star or 1-star territory, even though maybe you don’t want to sell out your entire position, you at least have to take some profits from the upside.
I know we also got some questions about people looking for new core holdings. Unfortunately, I just don’t think I have anything new at this point. I mean, the market is still pretty heavily valued, taking a look at those stocks that I would consider to be core holdings. I mean, there’s nothing new that’s fallen into 4-star territory that I think you should be really looking at to get into to start off with. I think companies like we already talked about, Microsoft and Alphabet, are both still core holding type of stocks. Maybe if you’re not involved in those, maybe go ahead and start with that partial position today after they sold off a little bit. But again, you want to keep that dry powder because if the whole market is selling off, you want to be able to buy more as they go down.
Stock to Sell: VLO
Hansen: Great. Thank you, Dave. It’s a great reminder. Let’s move on to picks, everybody’s favorite part. October is over and I cannot believe we are in the first week of November. You’ve brought us three stocks to sell and three stocks to buy for the month. Let’s start with your sell recommendations. You have Valero VLO, and refiners in general, it sounds like. Why do you recommend investors take a step back there?
Sekera: Yeah. All the refiners are trading well into overvalued territory. I picked Valero as really just an example here. It’s a 2-star-rated stock, trades at a 68% premium, but even Phillips 66 PSX, also a 2-star-rated stock at a 50% premium. HF Sinclair DINO is a 2-star-rated stock at a 32% premium. Marathon Petroleum MPC is a 1-star-rated stock at an 88% premium. They’ve all just run way too far in our minds when we think about the long-term intrinsic valuation of these companies.
What’s happened here in the short term, because of a lot of global conflicts, just because of how refiners in certain areas of the world have been shut down or might be under maintenance, or local governments really trying to keep refining capacity low within their own countries, global refining capacity has been pretty constrained. I think what’s happened is that, because of that, the normal flows have also been disrupted as far as how those refined products flow from one country to another, especially with everything else going on with Russia and Ukraine and in the Middle East right now. What we’ve seen is that US refiners in general have been actually very well positioned to capitalize on these global market disruptions, which has kept supply for the refined products relatively low, and of course then has bumped up the margins to new record levels.
Now, looking specifically at the refiners, our team has noted that those on the West Coast have really been the most insulated from crude supply disruptions and at the same time have been the ones that have been able to benefit the most from the high margins and the exceptionally wide crack spreads. While these companies are making just exceptionally high margins for now, refining in and of itself is a very cyclical business and has very high fixed-cost leverage. Of course, that fixed-cost leverage works great to the upside, but then again, it’ll also work against, you know, to the downside. Once the cycle starts to normalize at that point, then I think these stocks probably have a lot of downside.
Stock to Sell: HOOD
Hansen: OK, so some risk there. Second on our list is Robinhood HOOD. I don’t know what the opposite of pounding the table is, but that’s what you were doing on Robinhood. The stock has been on your sell list a bunch of times. Why do you still feel so strongly?
Sekera: Yeah, so we recommended the sell on the Oct. 5 episode of The Morning Filter. It’s down over 25% since then. We also reiterated that sell on the Oct. 12 episode of The Morning Filter when we were specifically identifying stocks to do tax loss harvesting on. Even with this one having fallen as much as it has, it’s still a 44% premium to our fair value, still a 2-star-rated stock. I mean, one of the more overvalued stocks across our coverage. I still think that to get even just to our fair value, we’re still looking at some very heavy growth rates. If you don’t see these growth rates come to fruition, then I think there’s even further downside from our fair value. In our model, we look for revenue to double from $5 billion in 2026 to over $11 billion in 2030. We’re looking for the operating margin to expand from 46.7% to 56.2% in 2030. Stock trades right now at 40 times our $2.13 per share earnings estimate, and we’re looking for earnings to go up to $5.32 in 2030.
Again, if there’s any kind of hiccup in those types of expectations, then our fair value’s at risk, much less the stock trading that much above our fair value as it is. With revenue coming in later than expected, a growth story that really accelerates pressure to the downside. I think that the company overall is probably in a pretty tough market position because, of course, a company like this makes the most money, makes the most margin on people who are trading short-term trades or even day trading. In a market where it’s necessarily trading to the downside—and who knows where we trade from here—if the market has further to fall, typically you see a lot less of that type of trading activity.
Stock to Sell: JNJ
Hansen: A lot of headwinds there for Robinhood. Number three, we have Johnson & Johnson JNJ. Now this is one of those core holding stocks that we just talked about. Tell us why it’s on your sell list.
Sekera: Exactly. I think this is one that we talked about as being a core holding, and our first recommendation on J&J was all the way back on March 18 of 2024. While I still think you might want to hold some of this position, I think you also need to think about taking some of the profit off the table, freeing up some of that dry powder so that way, if the stock does fall, you have the ability to dollar-cost average to the downside or maybe even just reinvest in some other stocks that are trading at a better margin of safety from their long-term intrinsic valuation.
This is one of those stocks where I think it’s been able to benefit from the “anything but AI” trade. I think we’re looking at pretty conservative forecasts. Our five-year compound annual growth rate from revenue is 6.5%. We’re looking for operating margin expansion to 31.3% from 26.4%. That might be a little on the high side. I mean, it’s averaged 26% over the past five years. We’re looking at a five-year compound annual growth rate for earnings of 8.1%, but it’s just that as much as the stock has traded up, it’s now trading at 24 times 2026 earnings estimates. Even on a forward multiple using our earnings estimate for 2027, it’s still a 22-times multiple, which in my mind is probably just too high for an 8% earnings growth.
Stock to Buy: AMAT
Hansen: OK. Thank you, Dave. Let’s move on to your buys. First up, we have Applied Materials AMAT, a semiconductor stock. Give us some of the key metrics there.
Sekera: Sure. Applied is a 4-star-rated stock, currently trades at a 25% discount from our valuation, only 0.5% dividend yield, so maybe not one if you’re a dividend-yield investor. Of course, High Uncertainty rating, but we are assigned a wide economic moat, that wide moat being based on cost advantages and intangible assets.
Hansen: OK. Now, Applied Materials was a sell recommendation just a few months ago. So what has changed to put it on your buy list?
Sekera: Yeah, it was a sell recommendation on the June 29, 2026 episode of The Morning Filter. We just noted at that point in time, I mean, as much as we have a very positive view on the company in and of itself, the stock just ran way too far, way too fast to the upside, and it’s now dropped 44% since then. Now we take the view that we think it’s fallen too much to the downside.
For those of you that aren’t familiar with the company, they are the largest semi-wafer fabrication equipment manufacturer in the world. As far as we can tell, industry demand is still very healthy across the board. When I take a look at our model, I think it seems pretty reasonable to me. We’re projecting revenue in 2027 to grow 30%, considering it’s already November, like you’re talking about. I think those orders, for the most part, for next year are already locked in, so it shouldn’t be that much risk to next year’s revenue.
Then from there, we expect revenue growth to start slowing in 2028 through 2030, taking down to 20%, 14%, and 10% respectively. It’s not like we’re looking for some big hockey-stick projection to the upside. And of course, the earnings kind of takes that similar trajectory. We’re looking for 38% growth in earnings in 2027, then slowing to 28%, 18%, and 14%. I like that we are modeling that while you have good visibility here into 2027, that we are bringing those down in the couple of years thereafter. Stock currently trades at 22 times our 2027 earnings estimate of 1765. I think it all looks pretty constructive.
Stock to Buy: SARO
Hansen: Great. Next up we have StandardAero SARO, which is an aerospace play. What are the highlights there?
Sekera: StandardAero is a 5-star-rated stock at a 45% discount from fair value. Now, this company doesn’t pay a dividend. It’s rated with a Medium Uncertainty. We assigned a narrow economic moat based on its intangible assets.
Hansen: Now, this stock is down quite a bit this year. We had a really big plunge that started in August. What happened there, and is our take different from the markets here?
Sekera: Well, it’s definitely different from the market based on that valuation discount, and this is actually the first time I’ve recommended this stock. In fact, I think we just picked up coverage of this company last fall, which is probably why I haven’t talked about this one before. The company itself is one of the largest independent providers of maintenance, repair, and overall services for aircraft engines. It also fits into that small-cap growth stock category, and I think this could be another one that maybe isn’t necessarily really looked at by the marketplace a lot, but as people are looking for small-cap plays, specifically growth plays and being an “anything but AI” play, that could portend well for this stock going forward.
I think the biggest concerns with this one, and maybe why the stock, as you mentioned, had sold off, is one, there are a lot of new aircraft that are going to be coming online. I think people are concerned that as new aircraft are entering into service that you might need fewer or less amount of jet engine maintenance. I think the other concern is that with oil prices being as high as they are and that flowing through to ticket prices, that high fuel prices could lower the demand for air travel overall. Now, when you think about jet engines, they need regular maintenance every specified number of hours of flight time, whether or not that flight is full or not full, and even if it’s a new engine, it’s still going to have to have that type of maintenance on those engines, those number of hours.
Overall, I mean, I’ve talked to our travel analysts; we haven’t seen a decrease in travel demand and they don’t expect to see one. People are still paying up for experiences over buying stuff. That trend hasn’t slowed whatsoever. Even if there were a decrease in travel demand, I still think that the airlines, while they would adjust over time by having a fewer number of flights, that isn’t anything that they can change very quickly. I still don’t think that that would end up really impacting the stock here in the near term.
Took a quick look at our model; our five-year compound annual growth rate for revenue is 6.4%, which is actually a lot lower. That’s about half the past three-year average, which was 13.5%. So that, to me, seems like that already takes into consideration a number of those different issues. We’re looking for continued operating margin expansion as they get more and more experienced with maintaining and working on the new engines that are coming online. We’re looking for the op margin to expand to 13.6% from 10.2%. Overall, our five-year compound annual growth rate for earnings when you put those together is not 18%, yet the stock’s only trading at 15 times our 2027 earnings estimate.
Stock to Buy: CCI
Hansen: Great. And number three, moving on to Crown Castle CCI, which is a REIT that owns and leases wireless cell towers. Walk us through the numbers there.
Sekera: Crown Castle is a 4-star-rated stock, trades at a 22% discount, nice healthy dividend yield at 4.8%. We rate the company with a Medium Uncertainty. We assign it a narrow economic moat based on efficient scale and switching costs.
Hansen: Great. Let’s talk about why this is a buy. I have a suspicion that our recent chat about SpaceX and US telecoms might be coming into play here.
Sekera: Yeah. We also had some viewers send in some questions about how to be able to play the SpaceX SPCX potentially getting more and more involved in the wireless business. When I think about if SpaceX really does want to get into the wireless business, they’re buying spectrum. Well, if they’re going to use that spectrum, of course now they need to have the actual equipment in place to be able to use that spectrum. Of course, I think that if they were to do that, they would add a lot of further upside to Crown Castle that we don’t have currently modeled into our model. Now, I like the stock because it’s still undervalued even without getting any new business from SpaceX. The company owns 40,000 wireless towers in the US. They make their money by leasing space on those towers to the wireless service providers, who then install equipment to support their wireless networks.
I think this is one that if you really believe Elon is going to get into providing wireless, I think he would have to go to a Crown Castle. I think that provides a lot of upside. Even without that upside, it’s still just an attractively valued stock. When we look at the valuation here, because it’s a REIT and because of the type of business it’s in, our analyst team uses a valuation multiple. It’s enterprise value/EBITDA. Historically, the long-term median for this company has been 23 times. It’s currently at 21 times right now. So, looks attractive from a couple of different points of view.
Hansen: OK, fantastic. And that is the end of our show. Thank you so much, Dave. Another marathon. Viewers and listeners who’d like more information about any of the stocks that Dave mentioned today can visit morningstar.com for more details, and we hope you’ll join us next Monday for The Morning Filter podcast. That’s at 9 a.m. Eastern, 8 a.m. Central. In the meantime, please like this episode and subscribe. Hope you have a great week.
