4 Stocks to Buy After Earnings

Key Takeaways

• Why to watch the Japanese yen.
• What this week’s inflation reports could mean for the US stock market.
• Which AI companies reporting this week to keep an eye on.
• After reporting stellar results, is Advanced Micro Devices AMD a buy?
• How to use Morningstar’s Capital Allocation Rating when analyzing stocks to invest in.
• Undervalued stocks to buy after earnings.

In this episode of The Morning Filter podcast, co-hosts Dave Sekera and Susan Dziubinski recap last week’s market performance, considering new developments in the Iran war. They cover why US investors should watch the Japanese yen, if inflation reports could rattle markets this week, and what to listen for in the upcoming earnings reports from Applied Materials AMAT and Cisco CSCO. Tune in to find out if AMD, Palantir PLTR, and ARM ARM look attractive after reporting earnings.

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

They discuss why Fortinet FTNT soared last week and brought other cybersecurity stocks along for the ride, then unpack an underdiscussed Morningstar rating that encapsulates the quality of a company’s management team. They conclude this week’s episode with four stock picks to invest in after earnings.

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

More From Dave Sekera

Dave’s Complete Archive

Market Outlook: Where to Find Value After April’s Rally

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.

Well, Dave, I can’t quite believe it, but it is another Monday morning.

**David Sekera: **Good morning, Susan. How are you doing?

The War and the Market

**Dziubinski: **That weekend went by too fast this time, but what are we going to do? It’s Monday.

Okay, so let’s begin this week with an update on last week’s developments in the war and last week’s market activity. We saw the S&P 500 hit new records last week, and oil did fall last week below $100. Where do we stand this morning?

**Sekera: **As far as the oil markets go, there’s a lot of back and forth, a lot of negotiations, a lot of posturing going on between the US and Iran, but unfortunately, at this point, still no resolution. I saw oil prices bounce around a lot last week. They ended the week at $95 a barrel, which is $5 lower than the prior week. Unfortunately, this morning they’re heading back up again. Last I saw was about $98.

Just to put that in context, they were like $55 to $60 a barrel preconflict. As far as events last week, it’s all about earnings, all about artificial intelligence, all about the artificial intelligence buildout boom. This would be the point in the show that, if my producer would allow me, I’d have the Metallica song “Nothing Else Matters” playing in the background, because again, that’s the only thing people were looking at in the market.

In fact, when I look at how a lot of these stocks that are most closely correlated to the artificial intelligence boom are going, got to admit the market is starting to feel a little bubbly here to me.

**Dziubinski: **Yeah. What specifically are you seeing there that makes you feel like it’s bubbly?

**Sekera: **I mean, a couple of things. In the options market, if you look at the number of calls outstanding on the S&P 500, my understanding is those are hitting new all-time highs as far as the number or the volume that are being traded right now. If you look at specific parts of the market like the SOX, that’s the Semiconductor Index, that’s up 24 out of 28 days in a row. That’s rallied over 60%, really over just the past month. Lastly, I was just looking at a lot of individual stock price action. Of our coverage of those over 700 companies that we cover that trade on US exchanges, since the end of 2024, 63 of them have had over 100% return. When I look through those individually, I’d estimate at least half of those are directly tied to the AI buildout boom.

When I break those numbers down further, there’s 18 with over a 200% return, and eight of them have over a 300% return. Of the top 10 returning stocks since the end of 2024, nine of 10 are AI-related stocks, and it ain’t over. I mean, just this year, 12 stocks have more than doubled. 11 of those 12 are AI stocks. In fact, the one that’s not technically an AI stock is a lithium stock, which I could probably argue that that’s also an AI stock. If I look at the market capitalization of those 12, we’ve seen an increase of those 12 by $2 trillion.

When I look at these kinds of increases in this short of a time period, to me, that’s not necessarily indicative of what I consider to be a more normal type of market action.

How the Iran War Is Shaping Markets

And what it means for your money.

US Stock Market Outlook: Where to Find Value After April’s Rally

Our reallocation strategy is working as intended. Opportunities remain in AI, tech, and small-caps.

Why Watch the Japanese Yen?

**Dziubinski: **Also, last week, there was speculation that the Bank of Japan had intervened to prop up the Japanese yen. Of course, that’s something you said you’d be keeping an eye on in 2026. What exactly did the Bank of Japan do?

**Sekera: **The Bank of Japan intervened in the exchange rate or the exchange-rate market between the yen and the US dollar. Effectively, what they did was sell the US dollar to buy the yen in order to strengthen the yen. If you look, the foreign exchange rate between the two is trading at over 160.0 yen per dollar, fell down to 156.5. Looks like it’s back to like 157 right now. I think the intent here is twofold. One, to help offset the rising cost of oil, to keep inflation from rising too far too fast in Japan. They are, of course, an island nation. They have to import a huge amount of their energy needs, but I think they also wanted to try and intervene in the bond market, but unfortunately for them, it didn’t look like this intervention really did much.

If you look at the 10-year Japanese government-bond yields, they really barely budged, still trading a little bit above 2.5%. For perspective, that was 2% at the beginning of the year, which 2.5% still sounds low, but those are already the highest yields that I think I can remember where the Japanese government bonds have been trading.

**Dziubinski: **Why is this something that US investors should care about?

**Sekera: **I think there are really three main reasons why. First, you always have the potential for the unwind of the Japanese carry trade. Essentially, if it’s no longer cheaper to borrow in yen and then take those proceeds and reinvest them into higher-yielding foreign-denominated assets, people will then sell those assets to repay the yen. There’s estimates of over a trillion dollars worth of assets that are being caught up in that trade that could be unwound, which, of course, would be a huge amount of technical pressure on the markets while people were selling those down. Second, Japan is the third-largest sovereign debt issuer out there. My understanding is they have over $10 trillion worth of Japanese government bonds outstanding. Japan is the fourth- largest economy in the world. Again, anything that would cause any kind of systemic issues here would reverberate across the globe.

Japan is one of the most indebted countries in the world. Their debt/GDP is already over 250%. Rght now, only 10% of their budget goes to their interest payments because interest rates are so low, have been so low for so long. So any kind of increase in rates, I think that if they go up too far, too fast, that could call into question the country’s ability to continue to fund its debt. Lastly, if you look at the duration of their bonds outstanding, on one hand, it’s very good for them that they have a lot of long-duration bonds outstanding, a lot of long-term maturities before they come due and have to refinance them. For every 1% increase in the yield curve, that’s about a $600 billion mark-to-market loss on those bonds that are outstanding. I think that could pressure a lot of the Japanese banks, cause them to pull in the amount that they’re willing to lend outstanding, which, of course, then could negatively impair their economy. Depending on how much those losses are concentrated, it could then call into question the solvency of some of those Japanese banks.

After Taking a Breather, Why Japan Stocks Could Keep Rising

The Takaichi government’s growth plans and foreign investor interest could lift TOPIX.

On the Radar: Inflation

**Dziubinski: **All right. Well, we’re going to be keeping an eye on it for the show. Let’s look ahead. We have April inflation reports coming out this week. What are you going to be watching for specifically in the inflation numbers?

**Sekera: **Specifically, I think you just have to look most closely at what’s going on with energy and how that’s impacting the headline number and whether or not that’s starting to leak into the core number. My guess is that the energy costs will probably be higher than what’s expected, but honestly, I really won’t be watching these numbers very closely. The only reason I’d really care is if it’s going to be very far from consensus in one direction or the other.

**Dziubinski: **Do you think the markets, you said at the top of the show, that the market’s sort of really all in on the AI story, that’s what driving things. Do you think there’s going to be, or is the market really going to care about these inflation numbers, or is the focus elsewhere?

**Sekera: **The focus is all artificial intelligence and where all that growth is coming from and how long it’s going to last. At this point, I don’t think anyone’s really going to care about these numbers all that much, bearing, of course, if they come really far from consensus, then yeah. Other than that, it’s not going to be a market-moving event.

A Stabilizing Jobs Market Is Weathering Inflation Pressures, for Now

The healthy April employment report is seen cementing the Fed keeping interest rates on hold.

April US Jobs Report: 115,000 Rise in Payrolls

Unemployment rate held steady at 4.3%.

Earnings Watch: CSCO

**Dziubinski: **All right. Well, then, let’s turn to earnings that we have on the radar this week, and we have Cisco on the calendar. Morningstar assigns the stock a $75 fair value estimate, and Cisco looks overvalued relative to that heading into earnings. So what are you going to be listening for, or what are your expectations here?

**Sekera: **As far as my expectations go, I mean, considering almost all of the commodity-oriented tech hardware companies surprise to the upside, all of their stocks soared after earnings, I wouldn’t be surprised to see the same thing happen here. Now, having said that, the stock is up 60% over the past 52 weeks. It’s up 25% year to date.

Of course, the other question is, is that already priced into the stock at this point? For now, it’s just going to be all about guidance and not really just about next quarter, but also guidance for all of 2026. With a lot of these tech-oriented hardware stocks, I think people are now trying to glean into just how much this growth is going to go and bleed into 2027 and thereafter.

I think a lot of these companies are going to start getting more questions about just how long the type of growth that they’re seeing is going to last.

Earnings Watch: AMAT

**Dziubinski: **Applied Materials also reports this week. Now, here Morningstar assigns the stock a $380 fair value estimate, currently trades a bit below that. What are you going to be watching for with AMAT?

**Sekera: **With AMAT, as a reminder, it is the largest global supplier of wafer fabrication equipment for semiconductors. What we’re seeing right now is that with the semiconductors, all the manufacturers are trying to expand their production as much and as fast as they can. It’s not just for AI, but also for CPUs, for memory, and all the other areas right now, just because the AI buildout boom is just pulling up all of the supply that’s out there. There should be a huge demand for that manufacturing equipment. I would actually be very surprised if I don’t see them beat earnings very easily and raise guidance.

AMD’s Stellar Results

**Dziubinski: **All right. Let’s turn to some new research from Morningstar about companies that reported last week, and we’ll stay aboard the tech train. We had AMD stock up 17% after earnings, and Morningstar raised its fair value estimate on the stock to $450. Unpack those results for us, Dave.

**Sekera: **Like we talked about last week, we knew earnings were going to be strong, considering just how much Intel had already surprised to the upside, and I’d say that AMD’s results and their guidance still blew away that already high expectation coming into the numbers. I read through our research here, and what stood out most to me was just how much AMD increased their guidance as compared to the guidance they gave six months ago. They doubled the total addressable market for server CPUs for data centers. They’re now looking, or estimating that to be a $120 billion total addressable market by 2030. That’s double the $60 billion number that they thought it was going to be just six months ago. Looking forward, CPU revenue in the second quarter, they’re looking for that to accelerate here to 70%. That’s up from 50% this past quarter.

It sounds like they’re already planning for similar types of growth rates into 2027 as well. I took a quick look at our updated model after that big fair value increase. We’re looking for a five-year compound annual growth rate for revenue of 36%.

Let me just put that into context real quick. We looked at the company, they did $35 billion in revenue in 2025. We’re currently forecasting them to do $47 billion in 2026. By 2030, that compound annual growth rate puts their revenue at $165 billion. Now, of course, with those kinds of growth rates, being able to charge whatever they want to charge, getting huge margins, our compound annual growth rate for earnings over that same time period is 66%. The stock right now is trading at 60 times our 2026 earnings estimate, which sounds like a really high valuation, but based on those kinds of growth estimates, it’s only trading at 35 times our 2027 earnings estimate. Again, you really got to believe on this one in order to get to those kind of valuations.

**Dziubinski: **So then, Dave, after the fair value increase—Morningstar’s fair value estimate increase—from that perspective, is the stock attractive?

**Sekera: **Attractive? Not really. It’s at fair value right now. It’s a 3-star-rated stock. Having said that, I do prefer AMD over Intel INTC. I have to note that AMD was one of the best ideas in the semiconductor space from our equity team at the beginning of March. On March 31, this was a $200 a stock. We’ve now raised our fair value up to $450. At this point, it kind of seems like the easy money is already behind us after having been one of our top picks.

AMD Earnings: Server CPU Demand Is Skyrocketing; Raising Fair Value to $450 From $300

PLTR Fails to Impress

**Dziubinski: **Palantir’s stock pulled back after earnings, and Morningstar held its fair value at $153. Go through these results for us. They seem to look pretty good on the surface.

**Sekera: **Yeah. I mean, they reported just a huge amount of growth, but in this case, that growth is already incorporated into the valuation, and I think that’s why you saw the stock react the way that it did.

Taking a quick look at our model here over the next five years, our estimated compound annual growth rate for revenue and for earnings is both pretty close to just being over 40%. Again, to put that in context for revenue, they did $4.5 billion in 2025. We’re expecting them to do $7.8 billion in 2026, growing to $28.8 billion by 2030. The stock is currently trading at 106 times our 2026 earnings estimate, which falls to 86 times by 2027. By 2030, even assuming those huge growth rates, it’s still trading at 35 times our 2030 earnings estimates.

**Dziubinski: **Palantir had been a really high-flying stock, but it’s kind of having a tough 2026. I checked this morning. It’s down about 23% this year. Again, you mentioned valuations seem pretty rich, but from a fair value estimate standpoint, is there any opportunity here?

**Sekera: **It doesn’t really look like it. I mean, this stock was pretty overextended at the end of last year. It has dropped enough to be in that 3-star territory. Only trades at a 10% discount to our $153 fair value. At this point, especially for a stock like this, I’d prefer a much larger margin of safety before I’m going to get involved.

Palantir Earnings: Lab Competition Is Possible, but We Still Like the Ontology; Valuation Is Fair

ARM: Overpriced After Earnings

**Dziubinski: **Arm reported what looked like strong results, and Morningstar increased its fair value on the stock to $150, but the stock pulled back after earnings. Why do you think that is?

**Sekera: **This is just another example of one of these stocks that just got ahead of itself as far as trading compared to its valuations. I think it sold off about 10% after earnings, but after that, it’s still a 1-star-rated stock, trades at a 40% premium to our fair value. Again, huge amounts of growth over the next five years. Our estimated compound annual growth rate for revenue is over 40%. We’re looking for some margin improvement. You get over 50% earnings growth.

To put these numbers into context, I think people really need to conceptualize what those kinds of earning growth rates mean. $4.9 billion in fiscal year 2026 for revenue. We’re forecasting $5.9 billion for fiscal 2027, growing all the way to almost $27 billion in fiscal year 2031. Stocks are trading at 91 times our fiscal year 2027 earnings estimate, 70 times our fiscal year 2028 earnings estimate, and 34 times our fiscal year 2031 estimates, so really huge multiples to get to those kinds of growth rates.

Arm Earnings: Architectural Win Looks Assured, but Silicon or Royalties Remains the Open Question

Big Week: FTNT, Cybersecurity

**Dziubinski: **Fortinet stock was up 32% last week. Morningstar held its fair value estimate on the stock after earnings at $108. What got the market so excited?

**Sekera: **It’s finally nice to see these cybersecurity stocks we have been talking about for so long get the recognition in the marketplace for the type of valuations we think that these companies are worth. Now, Palo Alto has been my more recent go- to pick in the cybersecurity space.

Fortinet has been a pick in the past. I looked it up, I think the September 22 show last year of The Morning Filter, it was one of the picks for the week. As far as earnings go, very strong, 20% year-over-year top-line growth. Their new offerings are doing very well. Margin expansion of 160 basis points, getting up to 36%. They increased their guidance for 2026 revenue to $7.8 billion, up from $7.6 billion. As you noted, this was all in line with our model, so we maintained our $108 per share fair value.

**Dziubinski: **Fortinet’s good news sort of lifted all cybersecurity stocks last week. Of course, longtime viewers know that cybersecurity is a favorite industry of yours. Given what we saw, the run-up in some of these stocks last week, give us an update on which ones you like best today after that run-up.

**Sekera: **It depends on what you’re looking for as an investor. After the rally, Fortinet is now right at our fair value, so a 3-star-rated stock. Palo Alto also had a big rally after Fortinet reported. It’s now only at an 8% discount, but it’s still one of my preferred picks in this space. Palo Alto was invited into Anthropic’s Project Glasswing. I think that really shows how that approval and acknowledgement show that they do have a leadership position in the cybersecurity space, specifically in AI. Now, Zscaler ZS is probably the most undervalued of the stocks. It’s a 5-star-rated stock at a 50% discount. This would be one I’d say is probably most appropriate for higher-risk types of investors, but it is one that was also invited into that Project Glasswing. Okta OKTA, 16% discount, 4 stars. I think that’s also a higher-risk type of situation.

If we look at CrowdStrike CRWD and Cloudflare NET, both of those are pretty close to fair value, 3-star-rated stocks. The last one here is Check Point CHKP. That is a 5-star-rated stock at a 40% discount. I’d just cautioned investors on this one. They did have a miss last quarter. I think they’re going to have to have at least a quarter or two of better results just to be able to regain their footing in the marketplace and get rid of some of that negative market sentiment that would be trading on that name.

Fortinet Earnings: Strength in New Verticals and Firewalls Drives Sales and Upbeat Outlook

KHC: Cheap After Earnings?

**Dziubinski: **Let’s get to a couple of other companies that reported last week outside of tech that have been picks of yours in the past. We’ll start with Kraft Heinz KHC. On last week’s show, you said you wanted to hear about the impact inflation was having on the company. Update us on that specifically and also comment on the results more broadly.

**Sekera: **I think this is one where the results were some good news, some not so good news. Organic sales were only down 0.4%. Again, you’d like to see that in the green instead of the red, but that’s still a lot better than the 4% decline that they had last quarter.

One of my hopes here has been that for this stock, and really a lot of the food names overall, that the negative impact that they’ve been under for the past couple of years from GLP-1s should be becoming less of a negative headwind, and that’ll allow Kraft, as well as a lot of these other stocks, to start seeing their top line moving back up again. As far as inflation, they’re still unable to quickly pass through their own costs, which are increasing very quickly. In this case, the operating margin did decline by 30 basis points to 34.1%, and the company guided to 4% inflation for fiscal year 2026.

I think this’ll probably be another tough year for this company. Of course, a lot of it’s going to depend on what happens with oil prices. If you look at a lot of their input costs, whether it’s wheat, corn, or soybeans, those are all moving up. Those are all higher year to date. With oil prices where they are, packaging costs, transportation costs, both of which are pretty large percentages of the percent of cost of goods sold for these food names, that’s all going to be higher as well.

**Dziubinski: **Morningstar held its fair value on the stock at $42. Kraft Heinz still trades at a pretty big discount to that, right?

**Sekera: **It does. It’s a 43% discount to our long-term intrinsic valuation, more than enough to put it in 5-star territory. For dividend investors, a very healthy dividend yield here at 6.9% and a pretty modest valuation at the end of the day, 11.6 times our 2026 earnings estimate, and only 10.0 times our 2027 estimate.

**Dziubinski: **All right. Sounds like an idea for a patient investor.

**Sekera: **Very patient.

Kraft Heinz Earnings: Merits of Stepped-Up Brand Spending Coming to Light; Shares a Bargain

DOC’s Rally

**Dziubinski: **Yeah. Another former pick of yours, Healthpeak Properties DOC, was up 18% after earnings last week. What did the market like here?

**Sekera: **To be honest, I’m not really sure. I read through our note. Sounds like everything was in line with our expectations, but obviously, the results must have been better than expected as compared to the street expectations. From our point of view, the guidance was also in line with our model, but obviously, it must have been better than what the street was looking for. They talked about how that successful IPO of Janus Living—that’s their senior housing portfolio—went well. Supposedly, that was a reduced overhang on this stock, but again, it was nothing different than what we expected. To some degree, I think it’s just a matter of the market coming around to our point of view as far as what we think the valuation of that stock is compared to the fundamentals.

**Dziubinski: **After earnings, Morningstar held its fair value on Healthpeak at $26. Is it still attractive?

**Sekera: **It is. It’s 25% discount to fair value. It’s enough to put it in 4-star territory. Nice big, healthy dividend yield here for REIT, 7.4%. Now, real estate is still one of the few sectors in today’s marketplace that’s undervalued as compared to our valuations. I still prefer those that have defensive characteristics. I still think you should steer clear of urban office space, especially in New York. Been a lot of news over the past couple of weeks with some of the proposed tax changes in New York. I think they’re going to end up losing a lot of high-income jobs in New York, specifically, Citadel’s Ken Griffin has an ongoing feud with the mayor of New York right now. He’s talking about taking a lot of his employees out of the city. Even more recently, I saw Apollo out there talking about how they’re going to reduce the number of personnel.

They’re going to move them to other offices they have in Austin and Miami. So if you’re looking for REITs in the urban office space, I would steer clear of New York, but maybe see if you can find something that’s going to be more focused in Miami.

Healthpeak Earnings: Same-Store NOI Growth Flat as Expected; Successful IPO of Janus Living

Unpacking the Morningstar Capital Allocation Rating

**Dziubinski: **All right. Well, it’s time for our question of the week. As a reminder, you can send us your questions via our email address, which is themorningfilter@morningstar.com.

Now this question is pretty in-depth, and when you see who it’s from, no one will be surprised. Everybody, grab a cup of coffee because we have a couple of questions here we’re going to be answering.

Now, this question comes from a professor emeritus from Dave’s alma mater, Miami University in Ohio. He uses Morningstar’s Capital Allocation Rating when evaluating companies. In fact, he says it’s a critical criterion in his analysis, and he has a few questions for Dave about it. For starters, he wants to know what goes into Morningstar’s Capital Allocation Rating and what distinguishes companies that earn Exemplary ratings from those that earn Standard ratings. All right, don’t let down the professor. No pressure, Dave.

**Sekera: **What a small world it is. Actually, I had to look him up here online and actually look through some of the artificial intelligence models here, but I think you might’ve been a professor of mine. I think if you were teaching Intro to Psychology in 1987 and 1988, you could probably look up and see how I did in your class. As far as the Capital Allocation Rating goes, I mean, what is Essentially, what the Capital Allocation Rating is, it’s our assessment of how good a job we think management has done as a steward of the capital that the company has and how they use the company’s earnings going forward. And when you think about it, what can a management company do with the company? What can they do with the capital? As they make money, what do they do with those earnings?

There’s really only a couple of things that you can do. First, you can always repay debt. You can then reinvest back into the business with capital expenditures. You can make acquisitions, you can go out and buy other companies, you can buy back your own shares, you can pay out dividends, or you can save the money and just let cash rise on your balance sheet. Really, what we’re trying to do is understand what management has done with that cash in the past, how has that worked out in the past? Based on that, how do we think they’re going to be using that capital to really enhance shareholder value in the future?

**Dziubinski: **What are some of the criteria that go into that Capital Allocation Rating?

**Sekera: **The first thing we’re going to do is take a look at the balance sheet. The big concern with the balance sheet is if a company is overleveraged to the point that we’re concerned that that amount of leverage could result in material capital destruction over time, then we’re going to assign a Poor rating. In fact, at that point, there’s really no need to even look at the other criteria if they don’t pass that test.

The second thing we’re looking at is their investment efficacy. Are they investing enough in the existing business to be able to drive organic growth? Are they making acquisitions? If they’re making acquisitions, then we are looking through a couple of different aspects there. We’re looking through the company strategy. Are they using that to improve the competitive position? Are they using reinvesting in the business to be able to widen their economic moat?

I want to see what kind of valuations they’ve paid on acquisitions in the past. Has the amount of economic value added been greater than the cost of what those acquisitions have been? Of course, we need to look at the execution from two perspectives. First, execution within their own business. Are they managing their own business to be able to drive additional shareholder value over time?

Secondly, if they are making acquisitions, how are they able to incorporate those acquisitions into their own businesses? Are they doing that effectively? Are they getting the synergies, whether those are cost synergies or synergies in the business that they thought that they were going to get? The other thing you have to be concerned about is: Are they underinvesting in the business? A lot of times, you might see companies be able to bolster their margins in the short term, but if they’re underinvesting and not putting enough money back into the business, if they’re keeping maintenance capex too low for too long, that then could end up negatively impacting the shareholder returns over the longer term.

Lastly, just want to take a review of how they’ve used cash in the past with shareholder distributions. What’s their dividend payout ratio? Are they doing share repurchases? If they’re making share repurchases, have they done these when the market’s been at the peak and overpaying for their own stock? Or are they doing those share repurchases when the stock’s trading at a discount to intrinsic valuation, which of course enhances shareholder value over time?

**Dziubinski: **All right. Well, can you give us some examples of companies? Let’s maybe look at both ends of it. Those with Exemplary ratings, which would be the highest ratings, and then those with Poor ratings, which, of course, are the lowest.

**Sekera: **Examples of exemplary ratings, I don’t think, are going to surprise anyone. Now, I did look at our total US coverage list, and I would note that about only a quarter of those companies that we cover, we provide an Exemplary Rating, and a lot of these are already household names, Procter & Gamble PG, Coca-Cola KO, Home Depot HD, Apple AAPL. What I’d note is that if you were to do a Venn diagram of wide-moat companies and Exemplary ratings, a lot of overlap that you’re going to see there. Now, as far as companies with Poor ratings, we don’t really rate that many companies with a Poor, and I think there’s a couple of reasons why. One, we usually skew our coverage towards higher-quality, larger companies. If you had a Poor Capital Allocation Rating, you probably don’t make it in there in the first place. It’s only 4% of our coverage that we rate with that Poor rating.

Companies include companies like EchoStar SATS, Paramount PSKY, and Blue Owl OWL. The largest one that people will know is AT&T T. The reason for that is that AT&T, unfortunately, has had a very long-term history of decisions that have reduced capital and shareholder value over time. Our analysts noted that they’ve had a pretty weak balance sheet over the past couple of decades. That’s hindered their financial flexibility over time. They’ve made a lot of poorly timed share repurchases. They’ve increased their dividend even when leverage was increasing at the same point in time. Lastly, in my opinion, the worst of it all for this company is that they have a long history of making what we consider to be ill-considered acquisitions, as well as acquisitions that have turned out poorly that they significantly overpaid for. That is one where I think people understand who the company is, but why we have that Poor Capital Allocation Rating on that one.

**Dziubinski: **Well, I hope the professor is satisfied with your answer, Dave. I think you get an A for that. Great work.

**Sekera: **Well, thank you.

Stock Pick: BAC

**Dziubinski: **Okay, everyone. It’s time for our picks of the week. We’re pretty deep into earnings season. Dave’s brought us four stocks to buy after earnings, and his first pick this week is Bank of America BAC. Give us the highlights.

**Sekera: **Bank of America is a 4-star-rated stock, and trades at just over 20% discount to our fair value. 2.1% dividend yield. We rate the company with a medium uncertainty and a wide economic moat, that wide economic moat being based on cost advantages and switching costs.

**Dziubinski: **I’m not sure that Bank of America has been a pick of yours in the past, but if it has, I don’t think it’s one that’s been a repeat pick. Why do you like it now?

**Sekera: **First of all, I really wanted to have a pick this week in the financial sector. It’s one of the few sectors that’s down; last I checked was down 5.5% year to date. And you’re correct, Bank of America has not been one of my picks in the past. In fact, I have to admit, Bank of America, probably not one of my favorite banks, but when I look at the valuation on Bank of America compared to the others, it is one of the more attractive bank stocks as compared to our intrinsic valuation. I would just note with this one, maybe this is a stock that you rent as opposed to own over the longer term. Bank stocks in general have fallen. I think a lot of that is just because the probability of the Fed cutting rates this year has continued to keep dwindling. Your market is now just pricing in less yield-curve steepening.

So then it’s also pricing in less expansion in net interest income margins. Overall, we thought first quarter results were pretty good. We’re seeing better efficiency ratios coming out of this bank that should support higher valuations over time. We’re looking for better non-interest income growth to the point that it should be able to more than offset the lack of net interest margin expansion.

Read Morningstar’s full report on Bank of America.

Stock Pick: RTX

**Dziubinski: **Your second stock pick to buy this week after earnings is RTX RTX. Give us some of the key metrics on it.

**Sekera: **RTX trades at a 12% discount. That’s enough to get it in 4-star territory, 1.5% dividend yield. We rate it with a medium uncertainty and a wide economic moat, the wide economic moat being based on switching costs and intangibles.

**Dziubinski: **RTX has been a pick of yours in the past. The stock hit new highs just in March, but it has since pulled back. Why is this one you like after earnings?

**Sekera: **Yeah, this is one we recommended a long time ago. I think the first time we recommended it was on the July 31, 2023, episode of The Morning Filter. We’d recommend it a couple of times thereafter, but as you noted, the stock has moved up. I mean, overshot to the upside. In fact, I think it was even 2-star territory earlier this year, which would’ve been a pretty good time to take some profits in this name, but it has dropped almost 20% from the peak. I think that’s giving us a second bite at the apple on this one. In the short term, I think the company will be able to benefit from the geopolitical conflict that’s going on. Specifically, our analysts note that the missiles business will get a good boost just from resupplying the Golden Dome and some of the other missile platforms. More importantly, he noted that the commercial engines business in the marketplace is being pretty heavily discounted.

So what’s going on is he thinks that the market is expecting that high oil prices are going to slow down aircraft usage overall. Therefore, that would then also slow down the amount of maintenance needs and replacement parts. We’re not seeing that yet. He just noted that even if there is some slowdown based on the amount that the market is overestimating how much that’s going to impact the stock, he thinks that this is a good opportunity right now. Lastly, I did talk to our Consumer team as well, and they just noted that if you look at our travel coverage, travel is still holding up very well for now. They’re not seeing any slowdown there at all. This could be a good one where there’s a dislocation in the market between what the market is pricing in and what we’re seeing.

Read Morningstar’s full report on RTX

Stock Pick: APH

**Dziubinski: **The third pick to buy after earnings is a name I don’t think we’ve talked about much before on the podcast, and that’s Amphenol APH. Give us the bird’s-eye view on this one.

**Sekera: **Amphenol’s stock is rated 4 stars, trades at a 33% discount. Not much of a dividend, only 0.7%. We rate the company with a medium uncertainty and a wide economic moat, the wide economic moat here being based on switching costs and intangibles.

**Dziubinski: **Why do you like this one after earnings, Dave?

**Sekera: **Those of you that haven’t heard of this company, Amphenol is a global supplier of connectors, sensors, and interconnect systems. In fact, it’s the second-largest market share globally for connectors. As much as I’ve talked about how I’m just very leery of a lot of the valuations for commodity-oriented technology and hardware, from our valuations, it looks like this one is the last undervalued play on commodity-oriented tech hardware.

Taking a look at our model, we’re looking for a five-year compound annual growth rate for revenue of 18.5%, some operating margin expansion to get that compound annual growth rate for earnings up to over 23%. Only trades at just under 25 times our 2026 earnings estimate, 20 times our 2027 earnings estimate. Like I said, in this one, this is really kind of the last play that we’re seeing in the marketplace as far as being undervalued for that AI buildout.

Read Morningstar’s full report on Amphenol.

Stock Pick: NVDA

**Dziubinski: **All right. Your final pick this week to buy after earnings is a stock that has not reported earnings yet. You’re going to have some explaining to do on this one. It’s Nvidia NVDA. Give us the highlights first.

**Sekera: **Yeah. I mean, even after the run that we’ve seen here recently, Nvidia is still a 17% discount to fair value. That’s a 4-star-rated stock. Now we do rate it with a very high uncertainty, but we also rate it with a wide economic moat based on switching costs and intangible assets.

**Dziubinski: **Now, Nvidia doesn’t report earnings until May 20. So explain why it’s a pick this week.

**Sekera: **Really, it’s just when you look at the amount of momentum on all the other Semi earnings companies and how much those stocks have moved afterwards, and trying to gauge what that means for the fundamentals here, really just trying to get ahead of Nvidia before they beat. I mean, generally, if I look at all of the companies tied to artificial intelligence with the AI buildout boom, they’ve all reported huge beats to revenue and earnings. They’ve all raised guidance. We’ve seen a lot of people increase their capex spending as well, so that should all be very positive news for Nvidia. I suspect we’re going to see another beat, another raise to guidance here. All of that should be viewed very positively by the marketplace. With this one, still trading at a discount. I think this one has good momentum and a lot of good positive fundamentals going into this stock for earnings.

Read Morningstar’s full report on Nvidia.

**Dziubinski: **All right. Well, thank you for your time, 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 great week.

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