3 Stocks to Buy Before Their Discounts Disappear Again

Key Takeaways

• Can the US stock market continue to hit new highs?
• What to expect from this week’s Federal Reserve meeting, which is Jerome Powell’s last meeting as Fed chair
• Whether Big Tech results and forecasts from Alphabet GOOGL, Apple AAPL, Amazon AMZN, Meta Platforms META, and Microsoft MSFT may disappoint.
• If Intel INTC, ServiceNow NOW, or Tesla TSLA look attractive after earnings.
• Is Adobe ADBE a buy or sell today?
• Three stock picks that look undervalued again.

In this episode of The Morning Filter podcast, co-hosts Dave Sekera and Susan Dziubinski discuss what’s on radar this week after the US stock market hit new highs, including the Fed meeting and inflation numbers. They’ll preview Big Tech earnings coming out this week from Alphabet, Apple, Amazon, Meta Platforms, and Microsoft, and do a rapid-fire Q&A about what to watch for in the earnings for several other companies, including Eli Lilly LLY and UPS UPS.

Subscribe to The Morning Filter on Apple Podcasts, or wherever you get your podcasts.

Tune in to find out if Intel, ServiceNow, or Tesla are stocks to buy after earnings—and whether it’s time to throw in the towel or back up the truck on Adobe. They wrap up with three former stock picks that look like attractive stocks to buy again.

Got a question for Dave? Send it to themorningfilter@morningstar.com.

More From Dave Sekera

Dave’s Complete Archive

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Transcript

**Susan Dziubinski: **Hello, and welcome to The Morning Filter podcast. I’m Susan Dziubinski with Morningstar.

Every Monday before market open, I sit down with Morningstar Chief US Market Strategist Dave Sekera to talk about what investors should have on their radars for the week, some new Morningstar research, and a few stock ideas.

Before we get started today, we have a couple of programming notes. We dropped a bonus episode of The Morning Filter last week that featured a conversation with Morningstar Director of Personal Finance and Retirement Planning, Christine Benz. In the conversation, Christine talks about portfolio construction, whether you should invest in international stocks, and where to invest when it comes to bonds. If you haven’t watched it yet, consider tuning in. We’re taping this episode of The Morning Filter on Friday, April 24, before market open. Our comments do not reflect anything that’s happened in the market since then.

Good morning, Dave. Thank you for making time to tape this early on a Friday. I can see you’re taping from your desk office, and everyone can see the view that you have every day at Morningstar.

**David Sekera: **Good morning, Susan. Yeah, that’s actually Daley Plaza behind me. This is actually probably one of the better seats here at Morningstar. Always have a nice view here, plus it’s always interesting to see what’s going on in the plaza behind me during the summer.

US Stocks Hit New Highs Again

**Dziubinski: **That is true. It can get loud in the plaza over the summer, so it’s a good thing we’re taking this first thing in the morning. This week, we’re not going to talk about the war in the markets because we’re taping it on Friday. And as we know from past experience, a lot can happen between Friday and Monday. But let’s talk a little bit about the market action that we saw last week. The S&P 500 hit a new all-time high, and oil prices were still kind of elevated for much of the week. What’s your take on that? Can the market continue to hit new highs?

**Sekera: **Let me answer the last question first. Can the market continue to keep hitting new highs? The answer there is yes, but I think that investors really should be cautioned that I think the easy returns are behind us at this point. If you look at the market action and where we’ve been from a valuation standpoint, at the end of March, we are trading at a 12% discount to a composite of our fair values. After the run that we’ve had, we’re not only trading at a couple of percent. I think this is actually a good time for us to review that barbell strategy portfolio that we recommended early in 2026. Coming into the year, we noted that the stock market was undervalued. However, for a whole host of reasons, geopolitics included, we thought this was going to be an exceptionally volatile year.

We recommended the barbell essentially being half in those very high quality stocks with economic moats, but high quality value stocks that we still saw value. Then the other half of the barbell being in those stocks that were in the growth category, which is the most undervalued part of the market coming into the year, specifically the technology and the artificial intelligence names. The investment thesis behind that barbell was such that during periods of volatility, if the market sells off and you have those deep drawdowns, value stocks actually do pretty well. You’ll see a lot of people rotate into value, and value can actually go up while the broad market is going down. Conversely, when we have periods where the market is rallying, those growth stocks, specifically technology and AI, will run further and faster to the upside. As valuations warrant, you can rebalance that barbell and take advantage of that market movement.

If you remember, on the March 30 episode of The Morning Filter, that’s when we first recommended to start harvesting profits in the value sector. In the first quarter, value stocks were up 3%, and specifically oil stocks, which we’ve been long recommending throughout 2025 as being undervalued, being a good natural hedge in your portfolio for inflation and geopolitical risks. In the first quarter, those were up 38%. We specifically called those out as a good time to start profit-taking there. And then, using those proceeds from value stocks and from oil stocks and reinvesting those into growth stocks. Growth stocks had fallen 6% over the course of the first quarter; specifically, the technology stocks and AI stocks were down 9%. Within those, a lot of those AI stocks were trading at really deep discounts. Technology overall was trading at a 23% discount to our fair value at the end of the first quarter.

If you go back through 2010, there were only two other times that we saw the tech sectors trade at not much of a discount. So what’s happened here in April? Well, we’ve had a big rally. As you’ve noted, the Morningstar Market Index, our broadest measure of the stock market, is up 9%. When we break that down, the growth category is now up 13% for the month, and then the technology sector has rallied even more; that’s up 17%. Over that same course, value stocks have lagged far behind. They’re only up 1.5%, and those energy stocks are now down to 7%. At this point, after we’ve sold those value stocks, sold some of those oil stocks, captured those gains there, and reinvested those into technology and AI. I think now’s the time you kind of want to sit back, let growth continue to run. I still see a lot of momentum in that technology sector and in those AI stocks.

A number of those are still undervalued, even as much as they’ve run up. At this point, I think you want to let those run up until they get at least into 3-star territory, maybe even well into 3-star or 2-star. At that point, that’s the time to start taking profits from that area and then putting that back into those value stocks which have lagged far behind.

Fed Meeting Expectations

**Dziubinski: **Well, the Federal Reserve meets this week. What are your expectations here, Dave? Could we see Fed Chair Powell just throw caution to the wind because it’s his last meeting as Fed chair, and that Q&A session could just be a wild one? You think that’s going to happen?

**Sekera: **I don’t. I think this is probably going to be a really boring meeting. I just don’t see him doing anything out of character. I think overall, it’s just going to be another non-event. There’s not going to be any change to monetary policy. I think he’ll probably just repeat a lot of the talking points that he had at the last meeting. In fact, I’m not even going to bother watching the Q&A session this time around. I don’t think that there’s going to be anything meaningful enough to spend my own time on it. This will be one where I just kind of read the news afterwards and see if there’s anything to glean from there. Overall, it should be a total non-event. If it’s not a non-event, well, then we’re going to really see some fireworks.

Economic Reports to Watch

**Dziubinski: **Then we’re going to have something to talk about next week related to it. We also have a couple of inflation and GDP reports coming out this week. What are you going to try to suss out from them?

**Sekera: **First of all, I just should caution people. I think you need to be extremely careful right now, looking at a lot of these economic metrics, and really don’t overextrapolate too much from what you’re seeing here in the short term. Personally, I’m paying less attention than usual to the inflation metrics and to the economic indicators. For PCE, I spoke with Preston, our economist, the other day. I don’t think that there’s really going to be anything here from an investor’s point of view to look at. I know from an economics point of view, he’s very curious to see what the differential between CPI and PCE is going to be. They do have some different data points that they use, and some different assumptions that they make in there. Typically, he noted that CPI is higher than PCE, but that hasn’t been the case recently. From his point of view, that’ll be interesting.

My point of view, not so much. It’s really all going to be how long does oil stay higher, and for how long, and how long does that take to flow through these metrics; how much is that going to keep the headline elevated, and when does that start bleeding through to some of the core inflation metrics? As far as the economy goes, I think that the GDP print will probably be very confusing as far as trying to read what’s really going on in the economy. I can’t remember how long you and I have talked about how, with the economy and really the stock market in general, it’s all been about the AI build-out boom. The vast amounts of money that the hyperscalers are spending in order to build out data centers, the over $700 billion of capex spending. Really, that’s what’s propelling the growth right now that we’re seeing both in the economy and in the stock market.

In my opinion, I think economic activity this year is going to be even harder than usual to forecast. Not only do we have those high oil prices, but we’re seeing a lot of supply dislocations and disruptions that have yet to flow through as well. When you look at the metrics here, the numbers are kind of all over the place. I looked at the Atlanta Fed GDPNow number. That’s only looking for a 1.2% print, which is down from 3% earlier this quarter. Preston’s forecast is 2.4%. He thinks the GDPNow factor isn’t including enough of the impact of the rebound and government expenditures following the shutdown last quarter. Again, we’ll see where that number comes out, but from my point of view, I don’t think that’s going to have a big impact on the stock market and valuations overall.

On The Radar: Big Tech Earnings

**Dziubinski: **You mentioned AI and the hyperscalers, and we have a big earnings week, and we’re going to hear from a lot of them. First up, we have Alphabet, Amazon, Meta Platforms, and Microsoft this week. We’re going to be busy. What are your expectations in general from these giants?

**Sekera: **From what I’ve heard, I don’t know of any reasons why these companies shouldn’t be able to have your typical beat as compared to what consensus numbers are. I think they’re going to be pretty strong results across the board. The real question will be what’s going on with guidance. Thus far in the earnings season, what I’ve seen is more confidence in the guidance that’s already been provided by a lot of the technology companies in general. What they’ve been doing is they’ve been tightening that guidance by lifting the bottom end. They haven’t been increasing the top end. I think at this point it’s too early, especially with all the uncertainty out there, to raise the top end of the guidance. In a few cases, I think the market’s been a little bit disappointed in that, but it hasn’t been enough really to change market sentiment or change our own valuations.

With those companies specifically, what I’m going to be listening for is that they’re going to get a lot of questions regarding the pace of the AI build-out boom. Personally, I’ve seen a lot of anecdotal news out there about how there’s just a lot of shortages in construction equipment, the equipment that you need to actually build and flush out those facilities. If there’s any pause or there’s any disruption, I think that could end up disappointing the market a little bit, just because that money’s not being put to work as quickly as they would like to see it put to work. Again, if you had any meaningful selloff on that, I think that’s probably just more of a better buying opportunity than anything else.

**Dziubinski: **So then, Dave, any one of these companies—Alphabet, Amazon, Meta, or Microsoft—that you have maybe a specific thing you’re listening for?

**Sekera: **For the most part, it’s just what’s going on with ongoing fundamentals and that guidance and that pace of earnings for the course of the year. The only one I’m really going to highlight here is going to be Alphabet. They recently put out a press release discussing the next generation of their TPUs. I think that people will be looking for more specific information on that. I think the market’s really trying to evaluate that next generation against a lot of the other AI chips, specifically Nvidia NVDA, and what that might mean to the broader AI chip universe.

**Dziubinski: **How does this bunch look from a valuation perspective? Do you think there are attractive opportunities ahead of earnings, or do you think it’s just best for investors to wait to buy until after earnings come out?

**Sekera: **Looking at these names, I can’t think of any or haven’t seen any real specific reason or any catalyst why I think you would need to buy these names ahead of earnings. Alphabet and Amazon are both rated 3 stars, so they’re in that fair value territory. Meta is a 4-star-rated stock. It is under value, but still pretty close to going into 3-star territory. Yes, there’s a margin of safety, but it’s not like it’s trading it like any giant huge discount. And then, there’s Microsoft. We’ve talked about Microsoft ad nauseam for months now on how deeply undervalued we think it is. 5-star rated stock. In this case, if the stock does catch a bid and starts to move up, I think it’s deeply valued enough that there’ll be time to get into it and still catch that upside.

Of course, with the stock with as large a market cap as Microsoft has, I don’t think that’s one that’s going to gap up so fast that you would miss that discount.

Going Into Earnings, Is Alphabet Stock a Buy, a Sell, or Fairly Valued?

From AI integration to capital expenditure increases, here’s what we expect in Alphabet’s earnings report.

Going Into Earnings, Is Microsoft Stock a Buy, a Sell, or Fairly Valued?

Microsoft’s earnings report is expected to touch on AI adoption and monetization.

**Dziubinski: **Apple also reports this week. You think we’re going to hear any new information about the upcoming CEO change in the fall?

**Sekera: **I don’t think that there’s going to be any big deviation in the current strategy of the company with the new CEO taking over. I think he’s already been well-positioned internally to be the successor. I don’t think he’s going to even say all that much publicly for the next couple of months. Our analyst noted that Apple’s Worldwide Developers Conference is coming up from June 8 to June 12. The keynote presentation will be on June 8. That’s where we expect that if he’s going to really make any big announcements, that’s the time he should provide his vision, as far as where he wants to take Apple over time. I expect that’s going to be the point that everyone’s really going to be focused on, exactly what he’s saying and how that may or may not impact the company.

**Dziubinski: **Apple’s sort of been perceived in the market as falling behind when it comes to AI. What are you going to want to hear about regarding AI from Apple? Anything else in particular you’re going to listen for?

**Sekera: **I spoke to Will on this one relatively recently. He thinks that the company is probably pretty close to releasing some improved, or at least some improvements to, their AI software. I know he expects the company this year to focus on the integration of Google’s AI platform and its models into Apple’s software and platform. I think there’s a lot that’s going to be going on with the ecosystem there over the course of this year and the next. Other than that, I just want to hear about the regular ongoing fundamental performance of the company. Lastly, I think there might be some concern, too, about what’s going on with the memory prices for semiconductors, and how that may impact the margins for their cell phones. That would be really the only other point that I think could swing that stock price here in the shorter term.

Apple Names New CEO as Tim Cook Steps Aside After 15 Years

John Ternus, Apple’s hardware chief, will take up the role in September.

Ahead of Earnings, Is Apple Stock a Buy, a Sell, or Fairly Valued?

From iPhone 17 sales to the new CEO, here’s what we’re looking for in Apple’s upcoming earnings report.

Earnings Watch: LLY

**Dziubinski: **Well, we have a really full earnings dance card this week. Let’s quickly run through a couple of other notable companies. First, Eli Lilly—stocks have had a kind of tough year, trading just a bit above Morningstar’s $870 fair value. What are you going to want to hear about here?

**Sekera: **We have seen a little bit of a selloff in the stock price. It seems that the market is probably coming around closer to what our long-term growth forecasts are at this point. As far as what might be next, as the next levers for growth, I think we want to hear more color on what’s going on internationally with the GLP-1 drugs, maybe any additional color on what’s going on with operating margins, whether there’s any real expansion left to still be realized there. I want to hear additional details on some recent acquisitions that they’ve been making. Essentially, what the company’s doing is taking just the huge amount of cash that they’re making right now on those GLP-1 drugs, reinvesting that into new pharmaceuticals. I think what they’re trying to do is lengthen out the growth runway, because at some point in time, the growth in those GLP-1s is going to slow.

They want to have some new drugs in the pipeline in phase one, phase two, and at that point, at least phase three, and maybe even getting close to approval to take up the growth thereafter. Lastly, maybe any other additional information on the recently approved GLP-1 drug in pill form that’s going to compete with Novo Nordisk’s pill-form GLP-1 drugs. Longer term, we think about one-third of that GLP market will end up being consumed in an oral version. It’s very important that we see the uptake in that way that people will utilize the GLP-1s in a pill, as opposed to having to take a shot.

Eli Lilly: Kelonia Acquisition Latest in String of Pipeline-Building Deals

Earnings Watch: SPGI

**Dziubinski: **S&P Global has been a pick of yours a couple of times this year already. It reports this week: a wide moat company, still trading well below our $570 fair value estimate, stocks down this year on worries about AI headwinds. What should we all be listening for?

**Sekera: **Overall, when I look at the performance of the stock, it’s been pulled down with the software sector overall. The software sector, of course, is facing a lot of negative market sentiment because people are just trying to understand what the impact of AI on software will be. What kind of disruptions are we going to see there? Personally, I don’t fully understand what the market is seeing or what they’re thinking as far as what that AI disruption could be for the rating agency business. I actually don’t know what the market would want to hear them say at this point that would alleviate that concern. Otherwise, I don’t think there’s anything really special to be looking for or thinking about this quarter. I don’t see any risk from private credit in the company here. Again, it’s just all going to be about fundamentals, all about the outlook.

I would note they are up against a pretty tough year-over-year comp. In my mind, if they’re just tracking along with guidance, I think that should be good enough.

Earnings Watch: UPS

**Dziubinski: **UPS is trading near our $113 fair value ahead of earnings. Why are you watching this one?

**Sekera: **This one, I’m going to be curious just what the impact of higher fuel prices is doing for the company. I’m going to be curious to see if maybe they say anything about putting through some surcharges in order to cover the higher fuel prices at this point. Other than that, we’re very focused on the potential for margin expansion. They have been reducing the amount of low-margin business, so that should accrete to margins over time. I just don’t know what’s going to happen here in the short term with those high fuel prices. Other than that, from an economic point of view, I always like to see what’s going on with their shipment volumes. I want to see if there’s any indication of changes in consumer buying habits with higher oil prices, if people are pulling back there. You want to see what’s going on with that small and medium business demand.

Lastly, I’m also going to be very curious about international business demand, whether or not that’s holding up, or if we’re seeing any downturn there.

Earnings Watch: MDLZ

**Dziubinski: **Mondelez has been a pick of yours, or was a pick of yours a couple of times last year, as cocoa prices were really driving down the stock. Mondelez is up this year and still trades well below Morningstar’s $75 fair value estimate. What are you going to want to hear about?

**Sekera: **Once again, it’s all about what the impact is going to be of these high oil prices. What’s the impact on consumer spending overall? Are we seeing any kind of change in consumer spending habits at this point? Especially in the emerging markets, that is the area with this company where we see the best growth dynamics. If we see consumers spending on food products and the branded products in the emerging markets tail off, that could be a risk here in the shorter term. Oil prices, of course, are going to have big impacts on their own costs; costs for packaging, transportation costs, those are going to go up. Is there anything that they can do there in order to try to offset those price increases? We’re seeing prices increase for some of the underlying raw materials, like wheat, corn, and soybeans. Those are all moving up with fertilizer prices going higher and oil going higher, which they’ve got to be able to fund all the combines and all the planting that’s going on there.

Overall, this is an ongoing theme we’ve been seeing in the food industry for a couple of years now, with inflation going up. A lot of these companies have had a very difficult time raising their own prices as fast as the prices that they raised to consumers. So we’ve seen a lot of margin degradation. Some of our investment theses here for these companies overall is that over time they will be able to get that margin back. Anything that keeps them from being able to regain the margin, I think, is going to end up pressuring these stocks here in the shorter term. Lastly, any impact on the developed markets as far as the GLP-1 drugs. The question there being, have we gotten to the point where we’ve reached the worst of the negative impact at this point, or is it still pressuring volumes?

Earnings Watch: HSY

**Dziubinski: **Hershey also reports this week. This stock has, again, been a pick of yours, also trading below fair value. Is it sort of the same? You’d be listening for the same things with Hershey as you would with Mondelez?

**Sekera: **Yeah. A lot of that same thing is going on here. I don’t think there’s actually going to be anything new in this earnings release. They recently had an investor day on March 31. The stock slid a little bit after that. I think it’s a combination of a couple of different things. One, I think the market was just kind of unenthused by investor day there. Plus, we’ve seen a weakness in value stocks overall, just as the market’s been so hyper-focused on bidding back up all of those growth stocks, the tech stocks, the AI stocks, and so forth. When we look at our medium-term targets compared to what the company provided on that investor day, they’re looking for 2% to 4% organic sales growth in 2027 and 2028. They’re looking for adjusted earnings per share growth, 15% to 20% in 2027, slowing then to around 6% to 8% in 2028.

Both of those are a little bit higher than what we currently have in our model. Maybe there’s a little bit of upside left here in the shorter term compared to our valuation. Right now, it trades at 23 times our 2026 earnings estimate, and drops to 20 times our 2027 earnings estimate. It is still a stock that we think is undervalued at this point. I mean, not necessarily that margin of safety when we first recommended it a while ago, but it still looks pretty attractive here.

INTC’s Results

**Dziubinski: **Well, let’s move on to new research from Morningstar about companies that have been in the news, and we have to start with Intel. Intel’s stock is skyrocketing after earnings. What did Morningstar think of the results?

**Sekera: **Yeah, we doubled our fair value essentially up to $60 at this point in time. Results way better than what our analyst team had expected. The top line rose by quite a bit on a year-over-year basis, but looking at our note here, I think the real action was in the operating margins. Those expanded by 650 basis points up to 41%. In our note from Brian Colello, our analyst, he noted that the demand for server processors has just been skyrocketing, and it’s supporting the AI build-out boom that we’re seeing right now. Taking a step back and from my own perspective here, this feels a lot like what we’re seeing with a lot of the memory semiconductors, which started late last year. There’s a huge shortage in that supply that was out there compared to the demand.

So there’s that big imbalance in that supply and demand. Prices are shooting up as the supply is. The supply is a lot less than what the AI buildup-boom requires. With the prices shooting up like that, I mean, the margins are just exploding wider and wider. I think the real question you need to ask here, and it’s both for the memory semis now as well as for Intel, is how long does this excess demand last? How long until manufacturing capacity can catch up? I took a look at Brian’s model that he updated last night. It’s a very expensive stock. You’ve really got to believe the story if you’re going to be buying the stock here. It’s currently trading at 71 times our 2026 earnings estimate. Even with the amount of growth that we’re modeling in for 2027, it’s still trading at 49 times there.

This is one that you’ve really got to believe that that earnings growth is going to last at least the next four or five years, to get that valuation down to where the stock is trading in the marketplace today.

Is NOW a Buy After Earnings?

**Dziubinski: **ServiceNow stock tanked after earnings, but Morningstar held its fair value at $165. What happened?

**Sekera: **I talked to Dan on this one. Dan Romanoff is the equity analyst who covers the software sector for us. Generally, he said the results were fine. In fact, he said they were probably better than expected by a bit. In his mind, he thought management did a pretty poor job communicating how to analyze the quarter and how to think about their guidance going forward. In fact, Dan called it management stepping on a rake, essentially. A self-inflicted wound, in this case.

In this environment, what’s going on with the software sector, it was just a disaster for the stock price. A couple of quick examples here. Anecdotally, he said that management described their outlook as being strong, but when Dan dissected the numbers, he thought the guidance was really only in line. I think a little miscommunication there. He thinks the company should have done a better job discussing the short-term impact of margins from a number of different acquisitions that they’ve made that have recently closed. A lot of noise in looking at the year-over-year comps that he doesn’t think were correctly explained. As far as the underlying fundamentals here and what’s going on, as far as artificial intelligence goes, revenue there is still on a very strong growth trajectory. It’s growing to $1.5 billion from $1 billion. He thinks that they have the best traction in the software space on utilizing AI to generate more and more revenue.

The question, of course, is what’s coming up next? What could be the catalyst to finally get the stock to bottom out and start moving back up? It looks like the company has an investor day coming up on Monday, May 4. I think that’s a good opportunity for management to provide better communication that Dan thinks the market is looking for. I think they can use that opportunity to provide a lot more details as far as AI utilization, how they’re utilizing it in products, and the economic value that it’s going to be able to create for their client base. Maybe that’s also the time that they start talking about how they may be charging for AI utilization over time. Even if you do have a decrease in seats over time, which is kind of what’s being priced in the marketplace, they can make up for that and even more based on the AI that’s going to be embedded in their products.

ServiceNow Earnings: Impact From Acquisitions Is a Near-Term Distraction From Good Fundamentals

**Dziubinski: **Given Dan’s take on earnings and the perhaps subpar messaging for management, is ServiceNow a buy?

**Sekera: **It is, but I’d also say this is a prime example of why I always recommend that when you start a position in a new name, start with a partial position, and just decide what that partial position is. Maybe it’s a half-size position, and then leave yourself the dry powder, so that way if the stock sells off, you can dollar cost average to the downside. It first fell into 4-star territory last year, and that’s when we first recommended the stock. It’s just fallen ever since then. At this point, it is a 5-star-rated stock, and trades at about half of our fair value. In the short term, there still may be more downward pressure yet to come. You might have more investors who just throw in the towel and just want to get out of this thing, at any price. They’re just not willing to take the pain at this point anymore.

Once the market gets a comfort level in the business, it’s not going to get completely replaced by AI. This is one that we think has a significant amount of upside potential and, over time, could be a double.

TSLA’s Results

**Dziubinski: **Tesla beat on earnings, but missed on revenue, stock pulled back a bit, and Morningstar maintained its $400 fair value on the stock. What do you make of the results, and is the stock attractive?

**Sekera: **From our point of view, there was nothing significantly different that was going on than what our analyst team had expected. The stock reaction here was interesting, that it was really all about the free cash flow. They announced that they were free cash flow positive in the first quarter, and the stock popped. Then, once they started talking about increasing their capex and that they’re going to be free cash flow negative for the rest of the year, the stock gave that all back and then some. Now, the capex in this case, they’re going to fund ongoing investments in their energy storage business, the battery business, and they’re really funding that humanoid robot part of their business. Away from that, Seth noted that they are expanding into two new cities with the robotaxi business. The good news is that where they’re expanding, they’re not having safety monitors in the cars.

He thinks that’s a good indication of the confidence they have in autonomous full self-driving. They’re forecasting nine cities by the end of 2026. It is coming off a small base, but Seth told me that the cumulative number of miles is doubling compared to the number of miles that have been driven in the past. He’s looking for the robotaxi business to become free cash flow positive here in 2027 and thinks there’ll be a pretty significant earnings driver by 2028. As far as the Optimus robots go, they’re building out that first phase to have a capacity of 1 million robots. Over time, that could get expanded all the way up to 11 million robots. For now, in our model, I know that we’re only using that 1 million run rate. There could be a lot more upside there if it really does get to that 11 million unit number over time.

Overall, when you think about Tesla, to some degree, people just look at it as being an investment in Elon Musk. This is one of those ones where I just don’t think this is a buy-and-hold kind of stock. This, in my mind, is definitely a buy-and-manage type of position. If you want to have that investment in Elon Musk, great. I think it’s an interesting stock. It’s rated 3-stars at this point in time. It’s just that over time, when you look at how much this stock has swung back and forth as compared to our valuation, there are just a number of different instances where the rally goes way too far to the upside, goes into 1-star territory. It’s a great time to pare down a position, lock in some of those profits, and have that dry powder because there’s also been a handful of instances where, when it sells off, it goes too far to the downside, deep into 4-star territory.

That’s the time that you really want to move into an overweight position. I think this is one where you want to play some of the volatility in the marketplace, even if you want to have that long-term position in your portfolio.

BX: Private Credit Update

**Dziubinski: **Alternative asset manager, Blackstone, was a pick of yours several weeks ago. It also reported this week. What did Morningstar think of the results? Specifically, were there any takeaways about private credit in particular?

**Sekera: **Overall, the quarter was pretty good. They did a very good job with fundraising and bringing in new money. They even raised new money in a credit opportunity fund. That’d be a fund essentially to be able to use for bottom fishing, once you start seeing some of those bigger losses in the private credit markets. Overall, I don’t think we learned anything new regarding private credit. Greg, who covers this for us, did note that private credit underperformed this quarter, but he also noted that it seems like they’re doing a better job than a lot of other competitors, marking down some of the assets in their portfolio, so marking those closer to what we think the true market valuation is. They’re acknowledging the stress in the market for private credit, not trying to cover it up. Since we recommended this stock, the stock has had a pretty good rally.

It’s up over 17%. It’s enough that it’s now in 3-star territory. I think this is one where it’s probably not a bad time to take some profit off the table. Is the risk really worth it here at this point, or is it time to just kind of take the money and run?

In my mind, I kind of want to take the money and run.

Good News for MRVL

**Dziubinski: **In some non-earnings news, another former pick of yours, Marvell Technology, popped last week after a report surfaced that the company is working on new chips for Google. The stock’s really been on a tear during the past 12 months. I think it’s up something like 200%. I’m assuming this one, although you may like the company, is too frothy a stock today, right?

**Sekera: **As far as our perspective goes, with as much as it’s risen, it really has been kind of a home run call for us since last year. As you noted, that stock has really had a big run here in the short term. Now this one has just moved into 2-star territory. Usually, that’s a pretty good indicator that it’s time to start taking some profits. In this case, I’d note that they don’t report earnings until I think May 28. To some degree, I actually don’t want to fight the momentum here. In my mind, I think this is a good time to use technical analysis in your trading strategy. I rarely recommend looking at the technicals, rather focusing on valuations, but I think this might be a good instance to watch some of those momentum factors. If we still see the momentum to the upside, I think you want to let it run, but I would keep a finger on the trigger in this case.

If you see those momentum indicators start to roll over, I would look to at least lock in some of the profits with as much as it’s run at this point in time, and the stock moving into that 2-star territory.

Marvell: Google Chip Report Aligns With Our Bullish XPU Growth Thesis, Now Recognized in the Market

Time to Give Up on ADBE?

**Dziubinski: **Moving on to our question of the week. This week’s question is from Bart, who’s curious about your thoughts on Adobe. Bart wants to know if it’s time to throw in the towel.

**Sekera: **This is a tough one. I mean, just when it appeared that the software sector started to go through that bottoming out process, we had the results coming out of ServiceNow, and then software stocks all resumed that selloff to the downside. Away from software as a sector, more specific to Adobe, they recently hosted an investor session at their summit event. Dan Romanoff, who’s the analyst here, just published a new note, so I’d recommend that investors take a read of that. My takeaways from there are that the company has been out there putting out a number of new products. Those products really focused on utilizing AI within their solutions, trying to make it so that those AI solutions are really going to enter more of an enterprise scale for more personalized content marketing. Our long-term investment thesis here is that we still think that Adobe overall will remain the key player in creative marketing, customer experience, and workflows for companies.

They’re going to utilize AI to improve economic value for the customers over time. We don’t think Adobe’s going to be replaced wholesale by artificial intelligence. As long as it continues to keep moving that along, fundamentally, the stocks look very undervalued in our mind. In the short term, they did announce a $25 billion stock buyback program. Now granted, that doesn’t change the fundamentals, but over time, when you’re buying back stock at as large a discount to fair value as what we think it is, that will definitely be accretive to shareholders over time. Lastly, just to give you a quick synopsis of what we are expecting here in our financial model, our five-year compound annual growth rate for revenue is 8.8%. That’s actually 200 basis points less than what that average has been since 2021. That average has been 10.8. As far as our earnings estimates, we’re looking at a five-year compound annual growth rate for earnings of 10.8%.

That’s 300 basis points slower than what the average has been since 2021. That’s been 13.8%. Compared to how this company has performed in the past, we have dialed back our expectations. At this point, that stock is trading under 10 times our adjusted earnings estimates for the year. That adjustment is really when you pull out that stock-based comp. Even if you look at it for a gap-earnings basis, where you include that stock-based comp, it still trades at under 13 times. From that valuation multiple perspective, it looks very undervalued to us.

Adobe: Serving Up Customer Experience Innovation With a Side of Stock Buybacks

**Dziubinski: **So maybe hold onto that towel, Bart. As a reminder to our audience, if you have a question for Dave, you can send it to our inbox. Our email address is themorningfilter@morningstar.com. Let’s get to the picks portion of our program. Dave has brought us three, what he’s calling second-chance stocks, this week. These are all former picks of his that ran up after he picked them, but have since pulled back and are now again in buying range. The first pick is Ingredion. Give us the highlights.

Stock Pick: INGR

**Sekera: **Ingredion INGR is currently rated 4 stars, trades at a 20% discount to our fair value, and has a dividend yield of 2.9%. We rate the company with medium uncertainty. We assign a narrow economic moat, that narrow economic moat being based on switching costs and intangible assets.

**Dziubinski: **This stock was first a pick of yours in February of 2023, when we were first starting the podcast. You reiterated that in January of 2024. Stock had a strong 2024, moved into overvalued territory, but it’s pulled back since then and now looks undervalued. Why is this a pick to go back to?

**Sekera: **From what I can tell, I think the stock is probably being pulled down with that broader selloff in the food sector overall. What I like here is that we recently raised our fair value to $140 from $130. Not necessarily a huge increase in fair value, but I like these ones where our analyst team is showing the confidence and actually seeing more intrinsic value while the market is actually going the wrong way. In this case, the company recently presented at the Consumer Analyst Group of New York, a big conference that they have at the beginning of every year. The company is highlighting an increased demand that they’re seeing for a lot of their specialty products, specifically in textures. They’re seeing a lot of their existing clients developing new products and using their products in order to be able to make those new products.

They reaffirmed their investment thesis that we think that the company will benefit over time from kind of that growing consumer interest in health-focused foods and beverages. Ingredion will benefit from that over time. The company provided a three-year outlook, specifically that the texture and healthful solutions part of their business is where they see the faster growth and the higher operating margins. As more of their business is in that segment and away from some of their traditional segments, you should get that positive mix shift. When I take a look at our forecasts, they seem pretty conservative to me. Top line, five-year compound annual growth rate for revenue, only 1.6%. From our earnings point of view, our five-year compound annual growth rate is only 4.5%. Stocks trading under 10 times our 2026 earnings estimate. Another metric I don’t talk about very much is an enterprise value to EBITDA.

In this case, it’s only trading at 6.6 times EV to EBITDA. That seems pretty low to me. If it were to get much lower than that, this could be maybe a buyout target. So I don’t know. This is one where, as you said, this is maybe a second chance to get into this stock.

Read Morningstar’s full report on Ingredion.

Stock Pick: SCHW

**Dziubinski: **Your next second-chance stock is Schwab SCHW. Give us the key metrics on it.

**Sekera: **Schwab is currently rated 4-stars, trades at a 23% discount, and has a 1.4% dividend yield. We assigned the company a medium uncertainty and a wide economic moat, that wide economic moat being based on its cost advantages.

**Dziubinski: **Now, Schwab was a pick of yours back in April 2023, shortly after that Silicon Bank failure. You reiterated it as a pick later that year, in October. Stock rallied, moved into fairly valued territory, but has pulled back this year and looks undervalued again. Why is this a name you think investors should consider going back to?

**Sekera: **I think this is one where the market is just not seeing the same value that we’re seeing here in the short term with kind of this recent selloff. We’ve had pretty regular fair value increases, steadily moving that fair value up, as you would expect, since the end of 2024. The stock had been increasing in line with that, but we did have the dip here, which is enough to bring it into that 4-star territory. They reported earnings earlier in mid-April, and I thought they were pretty strong. I mean, 16% top line growth, 38% growth in adjusted earnings per share, brought in 140 billion in net new client assets. As far as all that looks pretty good, we made a slight increase once again in our fair value to $114 per share, but the market sold off about 11% after earnings.

I think in this case, we think the market is overly concerned about the potential for more competition in the cash management space. I think we noted specifically that Jamie Dimon at JPMorgan was talking about utilizing AI in cash management programs. I think anytime the market is hearing some competitor talking about AI, people are just selling first and panicking before really trying to understand what that may or may not mean. In this case, a company like Schwab makes a lot of money on that cash management sweep. They sweep it into bank accounts, which they pay very low interest rates, and then they’re able to make a lot of money off of that float. Our analyst team doesn’t think that this is a large concern as to what the market is pricing in. We’re looking for 13% earnings growth rate over time, only trades at 15 times. This looks like a second bite of the apple to us.

Read Morningstar’s full report on Schwab.

Stock Pick: MOS

**Dziubinski: **Your last pick this week is Mosaic MOS. Tell us about it.

**Sekera: **Mosaic’s currently rated 4 stars. Now, this is one we have a high uncertainty rating on, so it’s a 40% discount. That is a very large margin of safety, but because it’s high uncertainty, that’s what keeps it in that 4-star territory as opposed to 5-star. To get to that 5-star, we’d need an even greater risk-adjusted margin of safety. Good dividend yield here, 3.6%. This is one where I have to admit there is no economic moat. Not one of my usual picks. I usually try to find companies that we think have long-term competitive advantages. In this case, based on the dynamics of what’s going on in the fertilizer industry and with as much of a large margin of safety as there is, I think it looks pretty attractive.

**Dziubinski: **Mosaic’s been a pick of yours twice this year, in February and then again in March. Stocks really had a rollercoaster ride this year. Talk a little bit about that volatility and then talk about, of course, why it’s one you think investors should revisit today.

**Sekera: **First of all, Mosaic is one of the largest producers of phosphate and potash globally. We recently increased our fair values on US fertilizer companies. In this case, we increased the fair value on Mosaic to $40 a share from $35. As far as what’s going on here in the fertilizer business today, the Middle East accounts for about 40% of all global nitrogen exports, 20% of phosphate exports, and 10% of potash exports. With what’s going on with the disruption in the Strait of Hormuz, we think that this will be a big benefit to the fertilizer suppliers whose supply comes from outside the Middle East. In fact, China also recently announced that they’re cutting any fertilizer exports. There’s going to be a shortage of fertilizer this growing season and probably into next as well. Lastly, I also like this company just from the point of view that if we are entering more of what’s considered a commodity supercycle, I think this one is going to be very well positioned.

All joking aside, you can’t replace phosphate with artificial intelligence. As you mentioned, it has been on a bit of a roller coaster. There are a couple of things going on here. Some of them are idiosyncratic to the company itself, some of them are more broadly market-related. With the company itself, they have had some operational issues at a phosphate facility in Florida. That’s unfortunately going to be a constraint here on the near-term phosphate volume production they have. Unfortunately, that’s just really coming at the wrong time for the company here, but even so, they’ve still guided towards a higher production rate for all of 2026. I think the second half of the year, following some improvements, some efficiency, and some increases in reliability, they’ll be able to get that production back. When you look at the global cost curve of fertilizers, we don’t think that they have any advantage here.

We think they’re really right in the middle of that cost curve, unlike some of their competitors, but they will benefit here because a lot of their supplies, like natural gas, are going to be based on US costs as opposed to global costs. With natural gas in the US being much lower, that will benefit them compared to those marginal players who are going to be lower on the cost curve. Taking a look at the valuation of the stock here, it trades under nine times the 2026 earnings estimates, yet we’re looking for an 11% five-year compound annual growth rate and earnings.

Read Morningstar’s full report on Mosaic.

**Dziubinski: **Thanks for your time today, Dave. Viewers and listeners who’d like more information about any of the stocks Dave talked about today can visit Morningstar.com for more details. We hope you’ll join us next Monday for The Morning Filter podcast at 9 a.m. Eastern, 8 a.m. Central. In the meantime, please like this episode and subscribe. Have a good week.

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