4 Stocks to Buy Before They Rise Further I September 28, 2026

[music] Hey. [music] [music] Hello and welcome to the Morning Filter podcast. I'm Susan Jabinsky with Morning Star. Every Monday before market open, I sit down with Morning Star chief US market strategist Dave Sakara to talk about what's been going on in the market, what investors should have on their radars for the week, some new Morning Star research, and a few stock ideas. Now, before we get started, we have a programming note for our audience. In case you missed it, we dropped a bonus episode of the podcast last Thursday. Dave took a deep dive into one of his recent stock picks, Broadcom, with Morning Star senior analyst Will Kerwin. So, if you missed it, you can find the bonus episode wherever you get your podcasts. And Dave, let me tell you, you and Will are turning into stars [laughter] on YouTube. The feedback is tremendous on the episode. So, congratulations. >> Well, that's not going to be me. I'm not that great of an interviewer, but yeah. No, Will had a lot of great commentary, a lot of good information in there. So, yeah. Yeah. And again, I think that's an interesting one, you know, to do that deep dive because it is such a differentiated view from what the market's currently pricing in. >> Yeah. Anyway, check it out, audience, if you haven't. All right, so let's kick things off this week talking a little bit about last week's market activity, starting with that spike that we're seeing in the 10-year Treasury bond yield. Now, Dave, you've talked about that a lot on the podcast this year, just about that risk of rising interest rates. So, do you think we're getting a little too close for comfort here as far as, you know, this having a sizable impact on stock investors? >> I think so. And in fact, the bond market last week reminded me of like one of the books I used to read, one of the favorite books I had, you know, for my kids when they were young. That book being Alexander in the terrible, horrible, no good, very bad day. And that's really how you describe the bond market last week. And unfortunately, looks the bond market's getting hit again this morning, you know, before market open. So if you look at the curve like the 5-year, you know, that increased by 15 basis points, that's now trading at 5%. And the 10-year increased by 18 basis points up to 5.18% by the end of last week. In fact, there was one individual day last week that the 10ear gapped out by as much as 18 basis points in just one day. You know, having traded the uh the Treasury market for a lot of years in my prior, you know, history, I just note that's a very rare move. Rarely do you see the the 10-year move that much in one individual day. As I said, you know, the this morning they're getting hit even harder again. You know, the tenure is now five basis points higher. It's five trading at 5.24%. So monthto date, I think the tenure is about 50 basis points wider than where it started the month. And in fact, year to date, it's now well over 100 basis points higher than where we were. So just to put that in a little bit of context, you know, the 10-year now is at the highest yield since it peaked in June 2007. And in fact, really the last time it traded above 5% for any meaningful period of time was, you know, pre20. Now to show my age here, you know, I started in finance coming out of undergrad in 1991, and even I barely remember rates, you know, being as high as what we're seeing right now. In fact, I pulled the data down and the average yield since 1990 is 4 and a4%. Uh my first mortgage back in the early 1980s was 88% which I think a lot of people would really have a hard time trying to swallow a mortgage, you know, at that kind of rate. So getting back to your original question, is it time to worry? So what I would say here is when I look at the market and look at our valuations, the market is underval undervalued overall. But I do think it is especially vulnerable today because typically you would expect stocks to struggle as interest rates are rising, you know, especially those long duration growth stocks that are going to be, you know, much more sensitive to changes in interest rates. But yet, if you look at the market performance, you know, monthtoday, even year to date, it's held up much better than I would have thought. And in fact, last Friday, you know, we had a pretty good rally, you know, going into the market close, which I really wouldn't have expected. So then David, let's talk a little bit about that stock market rally. You know, as you said, things really haven't been too bad for stock investors. So why do you think stocks are holding up as well as they are? >> You know, it's always really hard to know what the market is pricing in and thinking in, you know, in the short term. I mean, the media is always saying, "Oh, the market did this because of that." But sometimes it's really hard to exactly know. So again, just my own personal opinion is I think that the expectation is that rising interest rates really aren't going to change, you know, the pace of the AI buildout boom. And if you think about the AI buildout boom and the impetus behind it is, you know, first of all, you know, you have these forecasts, the projections, you know, the AI is just going to drive just a spectacular increase in demand. it's going to generate, you know, huge amounts of revenue that just the amount of compute and the amount of capacity that's going to be needed in the next couple of years is still kind of on that hockey stick, you know, curve upwards. And when you think about how people are deciding how much money to spend and they think about like what the return on invested capital is going to be, I think that those margins are so large right now based on those forecasts that a 1% increase in debt funding really isn't going to meaningfully change, you know, what the return on invested capital is today based on those type of forecasts. And then lastly, to some degree, I also don't even think it's really about what those specific return on invested capital forecasts even are. I think a lot of the AI buildout boom, especially by the mega caps, you know, the AI hyperscalers, is they just don't want to take the risk of getting left behind in what should be kind of the greatest technological advancement maybe even ever. You know, certainly since, you know, the internet. And I think the big fear for a lot of these companies is, you know, if they get left behind, they're never going to be able to catch back up. So, to some degree, that's what's being priced into the market today. >> All right. So then Dave look into that crystal ball of yours that you must have um you know given what we have seen with with stocks in this environment. What would you expect from the market in the near term >> and of course you know trying to guesstimate what the market is going to do in the short term is always to some degree a bit of a fool's game and let's play that game. So >> don't be a fool day be a fool. [laughter] >> Yeah. I mean looking forward overall I actually wouldn't be surprised to see the market at an index level hold up relatively well. And of course you have to remember like the top 10 largest mega cap stocks represent over 35% of the market capitalization you know of the index. And so I suspect a lot of the stocks of what I would call like real economy nonAI stocks are probably at a very real risk of a selloff, especially if the economy were to take a downward turn. But if those undervalued mega cap AI stocks hold up, you're not necessarily going to see that when you calculate it at that index level. So of course the question today, I think really is, you know, how much longer can the rest of the economy hold up? you know, whether that's in the face of the higher interest rates, you know, higher inflation, the elevated gasoline prices and so forth. And if the economy were to start to soften too much, is there a point that the hyperscalers and all these other companies building out the data centers start to pull back on the growth of the AI buildout boom? And of course, if that starts to happen, then I'd say, you know, put on your hard hat and look out below. >> All right. So, what else stood out to you in last week's market activity? Yeah, we had the big meetings in Washington between China and the US. As far as I know, and you know, correct me if I'm wrong, but I didn't see anything of any real interest. No new news, you know, coming out of the meetings with Chief from China. You know, there are a lot of conflicting headlines surrounding, you know, what we may or may not be negotiating with Iran. So, you saw oil prices whipping out, whipping around a bit. I think they're anywhere from like 88 to like maybe 96, you know, a barrel. But really, I think the most interesting news out there, which might have been below the headlines that most people would notice was that Oracle issued a force majour notice for construction of its largest data center, which is currently in construction, I believe, in New Mexico. So, what does that mean? So, a force majour is a clause in a contract that allows one party to essentially state that forces beyond their control may be causing delays, you know, in the buildout of a data center. And this is really going to be used to try and protect themselves against maybe any contractual penalties that they would have to pay, you know, if they are late in being able to deliver the data center that they're currently building. Now, typically a force majour is an event where it's going to be like war, terrorism, natural disasters, public health emergencies, you know, things like that. Not necessarily just permitting delays, which is what Oracle noted, you know, in their force majour at this point that they're not able to get some of the permits that they need in as timely of a manner that they thought that they were going to get. Now they still also announced even with that majour force majour notice that they still expect to be able to finish that data center on time. So that tells me there must be enough slippage going on that the lawyers are kind of twisting their arms you know to tell them to make this declaration but there's also still enough time enough buffer room that was built in the contract that if all the stars line up that they should still be able to get it done on time. So why is this of interest? I mean, for now it does appear to be, you know, only an an issue with Oracle, but of course, you know, is this a red flag? Is this just a canary in the coal mine? Is this going to be emblematic of a lot of other data centers maybe having similar permitting issues as well? And of course, if that's true and too many data centers are delayed, then that of course would then lead to a big slowdown in the amount of tech hardware and everything else needed for the data centers, which could reverberate, you know, throughout the entire economic value chain for the AI buildout boom. >> All right, so that's something to be keeping an eye on then. All right, let's look to the week ahead. This week, we have inflation and jobs numbers coming out. So, first let's talk about PCE. Uh what are the expectations for it Dave? And do you think the number could actually have a big impact on the markets this week? >> It could have probably a bigger impact than it might necessarily have, you know, if the numbers were to come out close to consensus. So I think right now, you know, looking at, you know, some of the numbers I watch, you know, the headline PCE forecast is looking at 3% on a month- over-month basis. So slightly faster than the 2% last month on a year-over-year basis. A slight increase, you know, coming in at 3.8% versus 3.7% last month. And then even core PCE being slightly faster at.3% versus 2% last month. So if it comes in slower than expectations, that just means that the Fed of course could then pause additional rate hikes here in the short term. I think that would give a pretty good boost to the stock market. Unfortunately, if it comes in faster, that would of course then be more of a reason for the Fed to tighten, you know, more and faster. The real concern is if it comes in a lot higher than what the expectations are. If in long-term inflation expectations were to start to go up, then I think that the bond market could really get whacked pretty hard once again. >> All right. Now, on the jobs front, we have uh non-farm payrolls numbers coming out. Now the market seems to care more about you know these numbers at least in the short term than you typically do but why do you think that is and but and do you think that number could actually impact the market this week? >> Yeah, as we've talked about in the past, I mean with the payroll numbers, I don't think the numbers in and of themselves are usually very reliable just based on the amount that they get restated the month afterward, months afterward, you know, year afterward. And those statements are restatements can in time a lot of times be very large compared to you know what the number was that first came out. Now in this case it looks like consensus is looking for 90,000 jobs growth. That's a lot less than the 162,000 last month. But the reason I think that it could be market moving this time around is if you look at the market I mean we're over 13% higher year to date. We're really close you know to our all-time highs. In fact, the market is 22% higher than where we were when it bottomed out last March. So, when I think about what happened earlier this year, you know, why did the market crater in March and what's different now? Just kind of running through, you know, back then the market was really selling off because oil prices of course were rising very quickly due to the conflict with Iran. Fears that inflation, you know, were kicking back up were rising. Interest rates were rising. And then the market was also changing its view on the Fed that it was going to change to a tightening basis instead of an easing basis. And then there's a lot of concern about what all of that would do to the economy and how much the economy would weaken. So what's happened since then? Well, oil prices still a lot higher. Last I checked, they're at $96 a barrel this morning. Less than where they peaked at, you know, well over $100 a barrel, you know, not that long ago, but still a lot higher than where they were pre-conlict. depending on how you want to measure inflation whether it's headline versus core whether it's CPI versus PCE you know inflation is you know faster now and on kind of that rising trend interest rates as we talked about certainly a lot higher and the Fed of course has started to tighten monetary policy once again. So the question is why have stocks rallied so much off of that March bottom? And to some degree I think it's just because the AI buildout boom is still just full steam ahead, still increasing at a very rapid rate. And because of that, the economy has held up very well in light of all of these other negative macro dynamics which in turn has also supported the labor market. So if payrolls come in too low, I think that the economy then is going to be, you know, showing that it's weakening. that could then lead to a sell-off in a lot of those nonAI stocks. And of course, from there, if you know the economy is slowing too much, you know, could that then, you know, put a damper on the AI spending? And if it does, then I think that would be very negative for the stock market. All right. Well, turning to earnings, we have a few companies coming up of interest, [clears throat] including Micron Technology. Now, Morning Star assigns Micron an $850 fair value estimate. Micron has of course been a member of that triple digit club. Stocks up nearly 600% during the past 12 months. So Dave, what are you going to be listening for with Micron? >> Yeah, and all of those stocks in that triple digit, you know, kind of return area to some degree, you know, all the same story. Most of them are pretty much these commodityoriented tech hardware stocks where because of the AI buildout boom, we've had huge shortages in a lot of these commodity oriented items. In this case, you know, this company makes memory semiconductors and all of these companies have just been able to jack up all of their prices. When you think about it, if you're a project manager building out a data center, you're going to pay whatever you have to pay to get those memory semiconductors to open on time. You're not going to go to your boss and say, "Hey, we're going to be a couple months delayed, you know, because memory cost me a couple million dollars more." You're just going to go, you're just going to buy it. So, these companies not only have seen their revenue just skyrocket, but of course, their margins have just skyrocketed to new all-time highs as well. So, the question is, and it's not just, you know, for Micron, but it's really all of these same kind of companies, just how much longer are we going to have this type of supply demand imbalance? So, of course, all of these companies have been revamping their production lines. They're starting new production lines. They're even building out, you know, new manufacturing facilities which will be coming online over the next, you know, 12 to 24 months. So, as far as our forecasts go, you know, we think that in 2028, that amount of new production should be enough to satisfy, you know, the heightened demand. And that even includes the AI buildout boom, you know, continuing into 2028 and all of these companies still requiring, you know, even more and more volume. It's just that when you get to the point when that supply demand comes into balance, prices are naturally going to start coming down. And at that same point in time, you're going to see the margins start to compress. When I look at what the valuations for all of these stocks are, it just looks like the market is pricing in that shortage to last longer than from 2028. Now, if you look at these stocks, and Micron is emblematic of this, you know, a lot of these were one-star stocks earlier this year. For the most part, they all peaked at some point in time in June. They rolled over pretty high. You know, in this case, that stock fell to about 750. That was enough to put it back into three star territory. But again, now they're all staging a recovery. It's back to a 27% premium at a twostar rating. So I think the key for this stock and how it trades in the short term will be what kind of guidance does management give and can they give the market comfort that that supply imbalance is going to last longer than through 2028. If so, you know, then there's probably further upside yet to come on the stock. If they can't, I wouldn't be surprised to see this one roll over and gap to the downside. >> All right. Well, Nike also reports this week and stock is down something like 80% from its 2021 high. Just a disaster. And you know, if you look at Well, of course you do, Dave. I I I looked at [laughter] the stock price chart because I was curious. There just doesn't seem to be any momentum for the name. So, is there any >> Oh, there's momentum Susan. >> Yeah. Negative. [laughter] >> Is is there anything that Nike can, you know, say that might lead to a bounce after earnings? I mean, fundamentally, when you look at that stock chart, I mean, there's really nothing any different right now going on than what we've talked about, you know, with Nike in the past. I mean, in the short term, the company, you know, we still think has pretty lackluster product development. The company's been struggling for quite a while in China. Have not any of the returns that they thought that they were going to get there. And unfortunately, I think Nike is still probably losing market share to a lot of these other running brands on Running, Hoka, Brooks, and so forth. So, the market really needs, you know, some good evidence of a turnaround, and that turnaround is going to lead to more long-term normalization. Now, when I think about Nike, I still think a better opportunity for investors is going to be on holdings. They just held their investor day, I think last week. The stock had a pretty good pop afterwards, so the market liked what it heard. The company gave a road map for the next three years in which they're going to be expanding into new adjacent categories. So, I think that can help drive long-term growth for that company. Trades at a pretty reasonable, you know, 18 times 2027 earnings estimates. And what I also like about this one, you know, versus Nike, it's not relying on a turnaround, you know, taking effect to get back towards normalization. All this company really needs to do is kind of continue that established growth trend that it has and continue to keep taking market share gains like it has been. >> All right. Now, Morning Star assigns Nike a $94 fair value estimate and continues to rate it with a wide economic moat. So, you know, based on valuation, Dave, you know, still not a bit fan of Nike ahead of earnings. Should investors hold off? >> Yeah, when you think about the valuation and think about Nike, I mean, this really is a 2028 turnaround story, not even a 2027 turnaround story. So if you look at our earnings estimates, you know, the company's trading at 21 times our fiscal 2027 EPS. So again, the stock is not cheap based on that, especially for a company whose, you know, topline and earnings have been contracting since 2023. Now, if you look at what this company has put up in the past, so for example, in 2023 and 2024, you know, their earnings per share were essentially, you know, 3 and a/4 and 3 and 3/4 each. So if they can get back towards, you know, those type of earnings levels, the stock really does look undervalued here at 11 and a half times kind of the average earnings from those years. But, you know, hey, I may not be from Missouri, which is known as the show me state, but I do think that's kind of the right attitude here. And this is a stock that, you know, we just haven't wanted to get, you know, caught in this downdraft that we've talked about, you know, for quite a while whenever you and I have talked about Nike. Saying all of that, if Nike can give any good indication that they're writing the ship, I think the stock has a lot of room to run to the upside based on those 2028, you know, type of earnings estimates. So, in this case, I think you can probably wait until you actually start to see that and even if the stock does start running up, I think that would be the point that you're going to want to jump on this one. >> All right. Well, let's talk a little bit about McCormick. Now, McCormack also reports this week the company announced plans to merge with Unilver's food business. Uh, Morning Star gives the stock a $65 fair value estimate and heading into earnings, the shares look very undervalued. Stocks down 28% this year. So, that's a lot. So, Dave, given all of that, what are you going to want to hear about? And is there an opportunity for investors ahead of earnings considering where McCormack's trading? Yeah, I don't think you necessarily need to get ahead of earnings and there is a lot that's going on with this story today. As you mentioned, they are merging with Unilver's foods business. So, not Unilver in and of itself, but Unilver is you know, hiving off, you know, that portion of their business. So once that merger occurs, which I think is supposed to be mid 2027, this is going to end up doubling the size of McCormick and it's really going to transform them into a much larger global fa flavor and condiment business than what they are today. Now, having said all that, I do think this is a little bit confusing. You do need to do a little bit of due diligence and read about like what's going on with this. It's almost kind of like a reverse merger because at the end of the day, Unilver shareholders will end up owning about 55% of the combined company. McCormick is going to own 35% of the combined company. And Unilver is going to actually keep that remaining 10% for themselves, which I think is a pretty good indication that Unilver still has a lot of confidence, you know, in the new McCormick after this merger occurs. And I believe McCormack uh management will be in place uh to run the business after the merger. Now, as far as the performance, you know, McCormack actually had been outperforming all of the other food stocks for quite a while until this merger announcement hit. So, to some degree, yeah, I think a lot of shareholders probably that have been invested in McCormack for a long period of time that were very comfortable with the company really just being the Spice's business might not necessarily like the shift in this product portfolio and what it's going to look like after the merger. So, we might have seen kind of some of those long-term shareholders, you know, exit. And to some degree, too, I think now because that they're going to be this much larger food company with other businesses other than just spices. Now, it's being pulled down just like all the other food stocks are continuing to get pulled down as well. So, as far as our fair value, it does incorporate our forecasts, you know, of the combined company. Our analyst Aaron, she thinks that the deal makes good strategic sense and she also thinks that the mix shift and the synergies here are going to allow that combined company to be able to expand margins over the longer term. Unfortunately, I think that until that merger closes, it's just harder for individual investors and advisors really to assess their performance because now the valuation isn't dependent just solely on the numbers coming out of McCormick, but you also have to have, you know, some assessment of the performance of Unilver's food business as well. Uh there is one bit of good news though. McCormick did state that, you know, after the combination of the companies, they still expect to maintain that commitment to the dividend payments that they've been making. you know, that consistent history over time of, you know, increasing those dividends. Now, in the short term, it may not increase as fast as they've increased them in the past. Uh, they are going to use, you know, some of the free cash flow in the short term to pay off some of the debt they're going to take on in order to make the acquisition, but I still like this one from kind of that long-term consistent dividend payment point of view for people looking for that for their portfolio. >> All right. Well, let's pivot over to some new research from companies we talked about last week. We're going to start with where I spent my Saturday and that's [laughter] Costco. Uh Costco released earnings last week. Results looked good. Walk us through them. >> And I'm sure just like the Sakara household, anytime you go to Costco, you always spend a lot more money than you think you're going to spend before you go in there. >> Hence those good [clears throat] earnings. >> Exactly. [laughter] So I mean the takeaway here is strong fundamentals. Again, we think of the company very highly, but we do think the stock is overvalued. Now, when you think about Costco, I mean, most of the clients for Costco do skew towards, you know, more higher income types of households. And, you know, as they noted in the conference call, they're still exhibiting very strong buying behavior from the households that are their clients. They also noted a lot of discretionary areas like electronics, health, and beauty. a lot of those more not only discretionary but also higher margin items are doing very well and they also specifically said that they're not seeing any what they call value seeeking behavior out of desperation. The other part that's really a good tailwind for this company is that they noted that younger consumers are becoming a bigger portion of their business overall. So of course, you know, the earlier you can you capture those consumers, you know, the longer tailwind you have of those consumers shopping at Costco. numbers very strong numbers you know revenue up over 11% same store sales growth almost 7% foot traffic up over 3% got a little bit of margin expansion so that was able to bring earnings up 15% I think our analyst noted that we'll probably end up bumping up our value by a couple of percent but even after that it's still a two-star rated stock trades over a 20% premium so when I go through our investment thesis here and compare that to what the market is pricing in. I think the biggest difference between our fair value and the market is going to be what we forecast for operating margins. You know, over the next decade, I think we have an average of 4.4%. And we have that increasing. I think it was like 3.9% is our forecast for 2026 going up all the way to 4.9% in 2035. But to get to what the market is implying today where it's trading at, you know, I think you'd have to have an operating margin of 5.5% which we think is probably just overly optimistic. You know, as a point of reference, over the past decade, the operating margin was 3.4. So, you really have to believe in not only to get to our valuation, you know, strong margin growth, getting to new highs, but the market's looking for it to get even, you know, much higher than it's ever been in the past. >> All right. Well, Darden restaurants, we also talked about last week. The stock pulled back a bit after the company reported earnings and some slower growth at Olive Garden. Yet, Morning Star raised its fair value estimate by a few dollars to $163 per share. So, what were your takeaways from the report for the company specifically? And then was there anything about the consumer more broadly that you took away from it? And one of the big reasons I really like, you know, reading through the transcript from Darden is because I think it really does give you a really good broad stroke into what's going on with a lot of different income levels, you know, for consumers, whether it's, you know, middle inome households all the way up to highincome households. In this case, consumer spending still remains especially resilient, but the company's management did note that value does matter even more and more. you know, every operating segment did very well. I mean, they were all up if you look at same store sales. So, yes, Olive Garden may have been a little disappointing. It was up 1%. But even then, management noted that after the September quarter ended that it was actually even doing better than that. If you think about kind of the upper middle to h um you know, households looking for kind of value steakous, Longhorn, same store sales up almost 7%. And fine dining still holding in there, you know, up 1%. So in this case, you know, even after our fair value bump, looking at the valuation as a long-term investor, we still think it's too high. Trades at a 23% premium. It's a twostar rated stock. When you look through our forecast, they seem pretty reasonable to me. So as far as like our 5-year revenue compound annual growth rate, you know, it's a combination of 2.4% for comp store sales growth. So essentially inflation going forward, and then looking for another 3% unit growth on top of that. You know, our compound annual growth rate for the next 5 years, 7.4%. Yet, the stock trades at a 18 times PE multiple. That's not necessarily way out there, but for what I would call probably an established restaurant chain, one that's not necessarily in like that real high growth ramp up stage, that's a pretty full multiple. So, I think the market really has to be looking for much stronger long-term earning growth than what we're currently forecasting. >> All right. And my son was at Olive Garden on Friday night and he was enjoying the bottomless pasta. So there's something something to the value the value story there. Anyway, all right. So let's move on. Let's talk a little bit about LAR, which was one of your recent stock picks. Stock was up 7% last week after regulatory filings revealed that Berkshire Hathaway had increased its stake in the company to close to 10%. So remind us Dave why you like LAR and whether it's still attractive after that good news and runup last week. >> And of course you know anytime the Birkshshire is taking a larger position in a stocky loan I mean that's always really a good positive indication. And of course when you think about Birkshshire they have a lot of dry powder that they can put to work. So in this case I'm hoping that maybe this is trying to put in kind of a floor you know in the stock price. And of course, also when you think about Birkshshire, they're not afraid of buying out an entire company if they think it's cheap enough. Now, in this case, I think they got up to was it 9.9%. So, you do have like SEC reporting differentials. So, from this point, you know, they might have kind of bought as much as they can from maybe a public shareholder point of view. They don't want to be considered probably insiders. But then again, if that stock were to trade down that much more from here and they already own 9.9%, who knows? Maybe they take a run at the overall company and, you know, merge that in with some of their other housing investments. But >> having said all that, I mean, from a fundamental point of view, it doesn't change anything, but it still looks attractive. It's a four-star rated stock, 32% discount. But I still think from a investor point of view, this isn't a stock you really own as a long-term investor, which I know that's against, you know, what, yeah, Warren Buffett says he likes to have a forever time period. I think this is more of one of those stocks that you rent versus own, especially for a company that we don't rate with an economic moat. And when I think about LAR and I think about the housing market, I really think this is a a leveraged play on interest rates. So, I think really for this stock to perform to the upside, you would need long-term interest rates to come down or at least stabilize, you know, and stop going up for this stock to work to the upside. So I think once that happens, you know, this is a stock you can rent and get kind of that good leveraged movement on rates stabilizing or even better coming down and having mortgages come down. >> All right, let's take a minute to talk about Bergkshire because Bergkshire's actually been one of your picks in the past as well. Uh stocks, you know, had its ups and downs this year and is essentially kind of flat from where it started the year. So do you think Bergkshire is, you know, still an attractive stock to buy today? Well, I still think of Bergkshire as probably being like one of the ultimate value stocks out there. And as much as you and I and pretty much the market likes to talk about, you know, the public stock portion of their portfolio overall, I mean, the greatest value of this company still lies in its, you know, portfolio of privately held businesses. You, as you mentioned, it's pretty close to fair value. Three star rated stock. So, from our point of view, not necessarily enough margin of safety on a riskadjusted basis to start a new position. But then again, if someone wants to start a position here, have a little bit of dry powder to down to a dollar cost average to the downside here. I also wouldn't argue against it. Got it. All right. Well, it is time for our question of the week. Now, as a reminder, if you have a question for us, you can send it to our inbox, which is the morning filter at morningstar.com. All right. This week's question comes from Carl. And Carl asks, "Dave, I'm hardressed to think of a time I've heard you talk about the entertainment industry. What do you think of the sector? Are there any stocks you'd recommend or recommend folks steer clear of?" >> All right. So, from an investing point of view, you should never let your own personal biases influence your investing. Having said all that, I'm a bit of a hypocrite here and I have let my own personal bias in this case, you know, probably steer me away from, you know, recommending some of the stocks, you know, in this industry. The reason being I'm just not a big fan of like the dynamics from an investing point of view of the entertainment industry. And when you think about the entertainment industry really over the past, you know, 5 to 10 years, there's been a lot of changes in how entertainment is created, distributed, consumed, and monetized. And let's just kind of run through, you know, each of those real quickly. So from the creation point of view in this sector, you've always had, you know, very high cost and also the risk of having to generate, you know, enough new hits, you know, every year to be able to offset, you know, some of the things that are, you know, slowly tailing down and really offset, you know, a lot of the misses that you're going to have every year as well. But now you also have to think about how is artificial intelligence going to impact content creation going forward. to some degree, I think it's going to make it a lot easier for people to be able to create content at lower costs going forward. So, if anything else, I think there's going to be much more competition from maybe smaller upstarts than what we've had in the past. And of course, lots of different platforms to put that content out on. And of course, with AI too, then you have the ability to make, you know, deep fakes, you know, be able to create a lot of artificial intelligence content that we haven't had, you know, in the past as well. Not necessarily sure how that's going to impact the industry going forward. You know, how this content is distributed. I think to some degree the industry is still trying to figure out the right balance between, you know, having their own individual streaming platforms that they charge for, but still be able to have it on a lot of the bundling platforms, you know, like cable. What we've seen is the shift to streaming, you know, puts them in charge of their own content more and more, but it also has, you know, a lot higher cost to be able to distribute it and it's led to much thinner margins here in the short term. As far as, you know, how content is consumed, you know, if you have, you know, you younger kids in your household, you'll see there is a huge generational shift in how younger generations consume entertainment, you know, differently than what we've had in the past. I mean a lot of my kids you know they just don't watch TV and in fact you know they spend their time on you know different platforms whether it's social media you know watching Tik Tok YouTube shorts metals but a lot of things you know other than kind of that traditional you know channel that you and I probably have spent more of our time on you know over the past couple of decades. And then lastly, thinking about monetization and just thinking about how all this content is paid for is just under huge amounts of pressure as well. I mean, if you think about like traditional TV ads, I don't think they can really be worth all that much anymore. I mean, personally, the little bit of TV I watch, I don't ever watch them because we always record everything and you're able to skip through, you know, those traditional TV ads. and thinking about like both kind of that traditional bunding bundling and then now also the streaming platforms you know each are getting squeezed cuz you know consumers are getting tapped out from either paying you know too much for cable cuz those rates keep going up and up or if you get rid of your cable and you're trying to buy those individual platforms it gets confusing because now you've got four or five you know different platforms that you've got to be able to you know scroll between to go and find something to watch and you're also kind of getting tired of having to pay all of those you know individual bills as well. So really, it all gets down to I just don't like those kind of macro dynamics from a long-term investing, you know, point of view until we see, you know, some substantial differences, you know, and how this this entertainment industry really looks, you know, going forward from here. >> All right. Well, Carl, thank you for your question. And it is now time for this week's stock picks. Dave has brought us four stocks that are up a ton but have more room to run. Uh your first your first pick this week Dave is Albam Marl. Tell us about it. >> Yeah, so Albam Marl is a four-star rated stock. Trades at a very healthy discount of 45%. Uh it is a very high uncertainty stock but it is one that we rate with a narrow moat based on its cost advantages. >> Now stocks up more than 30% during the past 12 months. Why do you think this one has more room to run? Well, I mean overall, I mean, this stock has always been kind of our go-to pick to play that long-term increase in demand in lithium. And in fact, this company owns two of the lowest cost and highest quality lithium production sites out there. Now, overall, our investment thesis for lithium is we are looking for still kind of that long-term upward trend in demand. So, for example, by 2030, we expect that about 2/3 of new global auto production is going to be electrified. whether it's a hybrid or a battery electric vehicle. And when we look at the amount of lithium that's currently being produced and we model out the amount of lithium that we expect to come online based on new production sites that are under development, we still think the amount of lithium overall is going to be under supplied and of course that will keep prices much higher than the cost of production. We also see some other de new demand, you know, coming from like the AI buildout boom. You higher demand from, you know, utility scale storage. So, I think that's a good long-term, you know, tailwind here as well. And then just running through, you know, some of the numbers, you know, for revenue, our 5-year compound annual growth rate is 11%. We're looking for good operating margin expansion over time. You know, we're looking for the company to do a little bit over 23% op margin, you know, in 2026. expanding up to 31% in 2027. So the stock on a multiple basis looks very attractive. You know, looking for $13 per share in 2026, so it's trading at call it nine times 2026 earnings estimates. Looking for $14.5 in earnings next year. So it's trading under eight times, you know, next year's earnings estimates. So I think this one still has a lot of room whether that's from a multiple expansion you know point of view maybe in the shorter term or over the longer term looking for you know pretty strong earnings growth over the next 5 years. >> All right. Well CH Industrial is your next pick this week. Give us the highlights. >> So CH is a five-star rated stock at a 38% discount to fair value. Not much of a dividend yield. I think it's a little bit under, you know, 1%. uh we rate the company with a medium uncertainty and a narrow economic moat. That narrow economic moat being based on switching costs and intangible assets. >> Now CH's stock is up quite a bit this year. I think about 43%. So why do you think this one has more upside ahead? >> Yeah, it's been a pick a couple of times uh over the past two years. I think the most recent pick was on the July 27th episode of the morning filter. You know, it's up 30% since then. And when you think about what this company does, I mean they're very leveraged to the agricultural cycle. So in this case, you know, 80% of the revenue comes from agricultural equipment, the other 20% from construction. And of course, the construction equipment has a huge tailwind behind it from the AI buildout boom. But on the A side, we've seen some big increases in corn prices, wheat, soybean. You know, these are up, you know, very significantly this year. So I think we're expecting, you know, more of that yet to come. Now this is a stock where, you know, it has slid over the past 3 years, but we think that we're at pretty depressed, you know, earnings right now. We are looking for some normalization. You know, we're only looking for, call it 50 cents a share here in 2026, but based on our forecast for topline growth as well as some operating margin expansion, you know, that gets to a dollar next year. So on a forward PE basis, you know, it's trading at, you know, 22 times. Yet, we're looking for a 5-year compound annual growth rate of earnings to get all the way up to 32%. So if you look at a PEG ratio, that price to earnings growth, it's trading well under one. In this case, it's only.7. So again, I think this one still has a lot of upside potential. >> All right. Amphanol is your next pick this week. Give us the key metrics on this one. >> Sure. So, Amphanol stock trades at a 16% discount from our long-term intrinsic valuation. Again, not much of a not much of a dividend yield, you know, only 6/10 of a percent. We rate the company with a medium uncertainty. So, with that narrow uncertainty or I'm sorry, that medium uncertainty band, you know, it is a four-star rated stock. We rate the company with a wide economic moat being based on its switching costs and intangible assets. Now, Amphanol stock is up about 41% since its lows in May. So, why do you still like it? >> Yeah, and I think it was a p a pick uh most recently on the May 11th episode of the morning filter. So, when I look at our valuations, you know, across a lot of the tech hardware space, you know, Afanel was really the last undervalued play on that commodity oriented tech hardware. A lot of those other stocks as we've talked about had all skyrocketed way too high, you know, up. So in this case, the company's a global supplier of connectors, sensors, you know, interconnect systems and so forth. So a lot of demand, you know, it's in fact, you know, the second largest global market share for connectors, which of course you're going to need a lot of connectors for all those data centers. Taking a look at our topline growth expectations, you know, looking at our 5-year compound annual growth rate, we're modeling in 18.5%. For our 5-year compound annual growth rate for earnings, we're looking at over 23%. Yet, the stock's trading at just under 25 times our 2026 earnings estimate. And based on our 2027 earnings estimate, it's only trading at 20 times. Yet, we're looking for some really strong growth, you know, over the next couple years. >> All right. And then your final stock pick is a name that you know we have we used to talk about a lot it seems and we haven't actually talked about in a while and that's Beckton Dickinson. So give us the bird's eye view on it. >> So the stock's currently at 18% discount 2.3% dividend yield. We rate it with a medium uncertainty. So that's enough to get it into fourstar territory. And we rate the company with a narrow economic moat based on its cost advantages and switching costs. >> Now Beckton stock is up about 30% from its lows in June. So why do you think this one has more room to run? >> Yeah, and this is one, as you mentioned before, we have talked about a number of times. I think it was a pick on the September 22nd, 2025 episode of the morning filter. And to some degree, the investment thesis now is still the same investment thesis, you know, that we had back then. And really just that over time, we're looking for more normalized growth and margins. This of course was a company that had a lot of disruptions in its business from you know how the pandemic played out at the beginning of the pandemic and then everyone you know bought too much you know forward and then you kind of had to give back the next couple of years thereafter. So we're really just looking for you know the business here which is life sciences and diagnostic equipment to really stabilize and looking for kind of the longer term growth to come back. And in this case I think that's what we're starting to see. I think we're going to start getting, you know, more investor confidence coming back in this name after the amount of volatility that it had the past couple years. Running through the numbers here, you know, third quarter revenue was up a good healthy 5.4% and in fact, management guided towards, you know, sales growth being at the higher end of its prior range. And they also raised the midpoint of their earnings guidance by 10% or 10 cents. Uh, so the earnings guidance right now is 1262 to 1272 per share. So, if you use the midpoint of that, the stock's only trading at 14 1.5 times. If you look at our guidance or our forecasts here, you know, we're looking for a 5-year compound annual growth rate for revenue of 3.9%. We're looking for the operating margin to expand as it normalizes over time. And we get to a compound annual growth rate over the next 5 years of 22%. So based on that 14 and a half time midpoint of the current guidance after it was just increased, I think it looks like a good valueoriented stock. >> All right. Well Dave, that's great. Thank you for your time this week. 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 9:00 a.m. Eastern, 8 a.m. Central. Uh in the meantime, please like this episode and subscribe. Have a great week. [music]