5 Stocks to Buy Before They’re Not Undervalued Anymore

Key Takeaways

• Why we’ll be watching the earnings reports from Broadcom AVGO, Marvell Technology MRVL and two cybersecurity companies.
• Whether Nvidia NVDA looks like a buy after its earnings beat and forecast hike.
• Who wins in the Advanced Micro Devices AMD/Meta Platforms META deal.
• The fallout from Blue Owl OWL and the increasing risk in the private credit market.
• What takeover talk for PayPal PYPL may mean for its stock.
• Value stocks are back. Here’s why we think these five value stocks to buy have more room to run.

In this episode of The Morning Filter, co-hosts Dave Sekera and Susan Dziubinski discuss which economic and earnings reports to keep an eye on this week. They cover new research about whether Nvidia can continue its winning ways, if Salesforce is a buy after earnings, and what to make of the AMD/Meta Platforms deal. Tune in to find out which stock saw a big cut in its fair value estimate last week and how to think about Diageo DEO after its dividend reduction.

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They unpack what’s going on in the private credit market and what lessons can be found in the Blue Owl mess. Value stocks are outperforming: They talk about a handful that still look relatively attractive and why.

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

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More From Morningstar

Dave’s Complete Archive

Private Credit Quality Continues to Weaken

Why AI Worries About Software Are Hitting Private Credit

Blue Owl Disclosure Drives Share Prices of Alternative Managers Lower

Dave’s Latest Stock Market Outlook

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’s 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.

Now, before we get started today, I’d like to ask our viewers and listeners for a favor. We hope you’ll take a few minutes to take The Morning Filter survey. We’ll use your feedback when developing future episodes. You can scan the QR code on screen or access the survey via the link in the show notes. We appreciate your time and feedback.

All right, Dave, well, good morning. The US and Israel launched an attack on Iran over the weekend. How are the markets reacting on Monday morning?

**David Sekera: **Good morning, Susan. Not too badly, all things considered. Right now, S&P 500 premarket is down a little bit over 1%. That takes it back down to the bottom of the trading range that the S&P 500 is traded at since last November. On the Treasury bond market, there looks like they’re actually flat to slightly lower this morning. Now, we did have a rally in longer-term Treasuries over the past week in the runup to this action. But the US Treasury, like the 10-year is still under 4% and there’s only been a few instances since last, actually, October of 2022 that we’ve seen it dip below 4%. Oil prices up quite a bit. Looks like WTI, West Texas Intermediate, up 5.5 to 72.5 a barrel. And I just say, this is kind of one of the reasons why we’ve continually recommended that we think investors should have oil exposure in their portfolios. I mean, overall, one, oil demand, as much as we’re trying to move away, is still not going away anytime soon. We still think it’s a good hedge against inflation, and, of course, in this instance, is working as a hedge against geopolitical risks.

It’s also one of the reasons why I’ve recommended gold for a number of years now. Gold is up $155 an ounce. It’s hitting new all-time highs at $5,500 an ounce. If you remember, we recommended Newmont Mining NEM back in January and April of 2024, Barrick Gold B in January and June of 2025. From the oil market perspective, our pick here is still going to be Devon DVN. We still like long duration US Treasuries. I’d steer clear of corporate bonds. I think credit spreads are still going to widen out even further from where they are now. So I’d still be very cautious in the corporate bond market. But we still think over the longer term, probably looking for lower yields in Treasuries. So that’s where I keep my fixed-income portion of my portfolio.

**Dziubinski: **Dave, as the war is going to continue, what do you think investors should be watching?

**Sekera: **Specifically, in this instance, the fog of war, it’s always difficult, at best, to separate, what’s real versus what’s propaganda. And in an era of social media where anyone can post anything, especially with what we’re seeing going on with artificial intelligence and deepfakes, I think you really need to stick to watching what’s going on in the oil markets. In my opinion, I think that probably reflects the best insights as to the on the ground situation. I’d watch the spot prices for both WTI West Texas, as well as for Brent. And I think it’s a combination of watching not just the amount of change, but the velocity of change in prices there. Of course, rising oil prices indicates the situation to be getting worse, falling prices may indicate that the situation is getting better.

So the reason I’m watching oil prices specifically more than I’m watching the other markets is, really, that’s a big boy market. You’re really not getting retail investors. You’re not getting advisors playing in oil fund futures. This is where you have the largest of the global macro hedge funds playing. These guys can spend lots and lots of money hiring people to give them the most up-to-date, most recent information. You have the global energy giants, BP BP, Exxon XOM. They have people really everywhere in the world, watching those fields, watching the pipelines. You can immediately call in on their satellite phones and give up-to-date information to their trading desk. So they have the best real-time information out there, probably even better than most governments have. So in that case, I think you see the changes in the oil prices faster than where you’re going to see it anywhere else, certainly faster than you and I are going to hear it by the time it gets through the news media.

On Radar: Jobs Report

**Dziubinski: **All right, let’s talk about what else is on your radar this week, maybe in terms of economic reports. What are you watching and why?

**Sekera: **To be honest, I’m actually just paying less and less attention to the economic metrics as they come out. And unless they’re really far away from where consensus is, I’m just kind of watching them and moving on and really trying to keep to the fundamentals of the individual companies under our coverage and really understand what’s going on with the investment thesis across our different sectors. Payroll, specifically, when I look at the revisions in those over the past couple of years, they were revised downward by 400,000 jobs in 2025. They were reduced by 600,000 jobs in 2024. I just don’t think that you can really put much faith in those numbers on a month-to-month basis, other than maybe just looking at where they’re going directionally.

When I think about the economy, especially with the artificial intelligence buildout boom, I think the economy is becoming more and more bifurcated. And I think that those individual economic numbers are telling you less and less about what’s going on overall.

**Dziubinski: **So jobs numbers coming out this week, but you’re not going to pay much attention to them. That’s the takeaway, right?

**Sekera: **Again, it’s really just going to be about do they miss? Do they beat? And if so, is that going to change any of the market sentiment? But to be honest, with everything going on in the world, that’s not going to be what changes market sentiment in the short term.

Earnings to Watch: Broadcom

**Dziubinski: **Well, we’ve got earnings season. It’s winding down, but there are still a few earnings reports you’re going to be watching for this week. Starting with Broadcom AVGO. Now, this AI stock is down more than 20% since its high in December of last year. So what do you think the market’s going to want to hear about from the chipmaker?

**Sekera: **It’s once again just going to be all about guidance. Whatever commentary they can provide on revenue and margins, I think we want to get some context from them of what they’re thinking about all of the Capex spending by the hyperscalers and just how that may or may not impact their business. Want to hear some updates on timing of the rollout of the custom and design chips for OpenAI. See if there’s any new customer wins that they can announce. Listening for order information, volumes, and pricing. Maybe any discussions on performance of XPUs versus how they compare to TPUs, maybe any updates on backlog.

But really, I think the market wants to hear anything about outlook past this current year. In my opinion, I think we’re at the point in the AI buildout boom, looking at where a lot of these AI stocks are trading, the market really kind of already has this year baked in. I don’t think they really care about what earnings are going to be down to the penny this year. I think the big reason why these stocks have been selling off over the past couple of months, we’re at the point where the market’s now trying to figure out what’s going on two years from now, trying to really understand what the demand picture looks like over the next three to five years as opposed to looking at quarter to quarter or even this one individual year.

**Dziubinski: **So then, how’s Broadcom’s stock look from a valuation perspective ahead of earnings?

**Sekera: **Still looks pretty undervalued. It trades at about a 33% discount to our fair value, so that puts it well into 4-star territory.

Marvell Technology Reports

**Dziubinski: **We have a former pick of yours reporting this week, Marvell Technology MRVL. So first remind us what Morningstar’s thesis is on this one, and then tell us what you want to hear about from management.

**Sekera: **I think with Marvell, this one is going to be much more specific about their individual products and how their products are doing, as opposed to more general commentary or guidance on artificial intelligence overall. I think the market is pretty wary about how their products are performing and competing against some of the other competitors out there. So we’d like to hear some commentary about maybe whether or not we’re seeing more solidifying with the relationship with Microsoft MSFT and Amazon AMZN. I’d really like to hear about new customer design wins. If we hear that, I think that provide much better sentiment in the stock. I’d like to hear more about their market share performance versus their competitors, and any context that they can provide surrounding expectations for next year. I think all of that would help the sentiment here. Because again, I think with Marvell, it’s going to be much more specific, much more idiosyncratic to their own AI products.

**Dziubinski: **Marvell stock does look undervalued ahead of earnings. Is it undervalued enough, would you say, at this point, to be a buy?

**Sekera: **Well, I mean, it is trading at a 32% discount to fair value. It’s a 4-star-rated stock. But again, that’s enough of a margin of safety to me that maybe you actually just go ahead and wait and see and listen to the earnings conference call, get some more commentary on their products, and see how they’re doing. Even if that one does take a nice pop after earnings, it’s still at enough discount that there would still be a lot further upside yet to come.

Okta, CrowdStrike

**Dziubinski: **Well, we have a couple of cybersecurity companies reporting this week: Okta OKTA and CrowdStrike CRWD. Now, both stocks are down quite a bit this year because they’re, of course, getting swept up in that “anything but AI” trade. So anything management can say to potentially boost the stocks?

**Sekera: **Well, I don’t even think it’s just necessarily the “anything but AI” trade. I think that these are specifically getting caught up with the downturn we’re seeing in the software stocks, anything that’s being sold, software as a service. And a lot of these stocks, I think people are very concerned about whether or not there’s actually existential risk for these companies more than they’re concerned about any one individual quarter or even, like, this year’s earnings. So I think anything they can do to communicate to the marketplace as far as why artificial intelligence isn’t going to replace cybersecurity, in fact, if they can talk about why artificial intelligence makes cybersecurity software ever more important, I think that would help the market sentiment quite a bit here. I think they need to talk about specifically how they’re utilizing artificial intelligence to make their own cybersecurity software products even better.

And I think what they need to do is really tell the market why they’re not going away to some degree. I mean, artificial intelligence only can use what knowledge is already out there. I mean, it doesn’t develop and identify like new systems. It can’t really protect against vulnerabilities that haven’t already been discovered and out there, whereas the cybersecurity companies can get ahead of that. So again, I think it’s really trying to educate the market more on how they think that that’s going to play out over the next three to five years, than, really, the market caring about what earnings is going to be this quarter or next.

**Dziubinski: **Now, Okta’s stock is trading pretty well below Morningstar’s fair value estimate. CrowdStrike’s about fairly valued. And again, we know you like cybersecurity as a theme, but do you think either of these stocks are attractive ahead of earnings, or might it be better to evaluate them after earnings come out?

**Sekera: **Yes, I mean, Okta is a 4-star-rated stock. Trades at a 28% discount, but I’d highlight this is one we rate with no economic moat. So if I’m looking to get involved in the cybersecurity names, I’d look at Palo Alto PANW and Fortinet FTNT. Both 4-star-rated stocks, both have wide economic moats. My preference there is going to be Palo Alto. That does trade at a 34% discount, whereas Fortinet is at a 27% discount. I know a lot of people also like Checkpoint CHKP. That’s a 4-star stock at a 24% discount. However, we rate that one with a narrow economic moat.

And then, lastly, I just would want to point out, I think there’s also other ways that you can get involved in cybersecurity. So if you don’t want to buy the individual stocks, taking the individual stock selection risk, you could always look at an ETF. Now, I’m no ETF analyst. I did take a look at a couple here. So one example I would highlight would be like Global X Cybersecurity ETF. Ticker there is BUG, B-U-G. And just taking a quick look at which companies they hold, I’d just note that they do hold a relatively high percentage of a lot of the cybersecurity stocks that we cover and we’ve talked about.

Nvidia: A Buy After Earnings?

**Dziubinski: **All right, well, let’s move on to some new research from Morningstar about a few companies that reported last week. And we’ll start with Nvidia NVDA. Now, to no one’s surprise, the company blew past forecast and upped its guidance. So what stood out to you in the report, Dave?

**Sekera: **Well, I think most surprising was the stock action afterward. I think the stock was down about 9% since earnings. Now, as you talked about, I mean, they beat in every way that a company can beat. Their quarterly results came in better than expected. Their guidance and their outlook both better than expected. I’d say the commentary from management, I would consider that to be somewhere between robust to bullish. And the stock still sold off afterward. Stock’s still kind of in the middle of the trading range we’ve seen since last October.

Taking a look at some of the fundamentals, revenue was up 73% year over year. Guidance for this quarter to be up 77% on a year-over-year basis. They’re looking for ongoing, sequential, quarterly growth for the rest of this year. And I’d note, that doesn’t include sales into China, which could provide even more upside to that top-line number. Taking a quick look at our model, for fiscal 2027, which is what we’re in right now, EPS growth, we’re looking for a 63% growth rate. And then we dial that back pretty quickly thereafter. So for fiscal 2028, we’re only looking for 20% growth, fiscal ’29, 15%, 2030, 14%, and then looking for it to kind of flatline in 2031. So putting in some more conservative estimates in those out years. But yet the stock’s only trading at 23 times our fiscal 2027 earnings estimate.

So I guess the question is, what does that actually tell me and tell me that the market is thinking? And I’m just going back to what we were talking about earlier. I don’t think the story for artificial intelligence any longer is about whatever top-line growth and earnings are going to be this quarter, or even next quarter, or even for the full year. I think the market’s really trying to figure out what to expect over the next three to five years. And that is what’s going to push these stocks higher or lower.

**Dziubinski: **Now, Morningstar held its fair value estimate on Nvidia at $240. And as you pointed out, the stock pulled back. So is Nvidia attractive today?

**Sekera: **It is. It’s a 4-star-rated stock, trades at a 26% discount to fair value.

Salesforce Earnings: Takeaways

**Dziubinski: **All right. Salesforce CRM reported as well last week. So what did Morningstar think of those results?

**Sekera: **Really not all that much interesting to talk about. Results were in line. Guidance was in line. As we expected, very positive momentum in its AI products, specifically, annual recurring revenue up 200% on a year-over-year basis. Of course, that’s coming from a relatively low base but still a huge amount of growth. Now our analyst did touch up his model. He did model in some lower longer-term growth. I think the concern here is how do you price their product going forward, it is something that you price right now on a seat-based basis. So I think the concern here with the stock is that if artificial intelligence replaces personnel at their clients in the longer term, you need fewer seats. Yet, from our point of view, if artificial intelligence being incorporated into their products provides more economic value, you could probably charge more per seat or, conversely, maybe they have to move to a different pricing model over the future. Either way, by pulling back some of those longer-term growth expectations, we did lower our fair value a little bit. Lowered it by about 8%.

**Dziubinski: **So then, Dave, how’s Salesforce stock look from a valuation perspective today?

**Sekera: **Still looks undervalued. It’s a 35% discount to our fair value estimate, so it puts it pretty solidly in 4-star territory.

Workday’s Big Fair Value Cut

**Dziubinski: **Now, Workday‘s WDAY stock was up after earnings, but Morningstar really kind of took a sledgehammer to the fair value on this one. Yeah, brought it all the way down to $170 from $300. So why such a big cut?

**Sekera: **Yeah, I have to admit, I mean, I have to consider this one, unfortunately, just being a huge miss on our part. For fair value, reduction of 43% is just a huge downward revision. There’s really no other way to talk about it. Now, the quarterly results came in, they were just fine, but it was the guidance that came in well below expectations. Caused us to lower EPS estimate for this year, down to 10.66 a share, that’s down from 11.18 per share.

But when you look at the fair value and really what caused such a huge cut to that fair value is really a total reassessment of the revenue potential for their AI solutions. And that really significantly reduced our longer-term forecasts. So if I take a look at this model from prior quarter to this quarter and look at a couple of things here. So for example, our revenue, we cut that by 9%, I’m sorry, cut our five-year compound annual growth rate to 9% from 12%. Of course, that gives you negative operating margin expansion. So we lowered that. So our operating margin now is 18%. That was 22%. So between that slower top-line growth, less margin expansion, cutting the earnings-growth rate to 26% from 39% growth rate, really ended up pulling back on our fair value on that one.

AMD/Meta Partnership

**Dziubinski: **All right. Well, in other news, last week, Advanced Micro Devices AMD and Meta META announced a new strategic partnership. Morningstar raised its fair value estimate on AMD to $300 on the news, and Morningstar left its fair value estimate on Meta unchanged at $850. Dave, walk us through the deal and why it seems to look like a win for AMD.

**Sekera: **Well, I think overall, the agreement just helps solidify why we’ve long considered AMD probably going to be the number-two player in artificial semiconductors behind Nvidia. So, they did expand their strategic partnership. Meta can now deploy up to 6 gigawatts of AMD’s customized GPUs. First gigawatt is expected to be in the second half of this year. So, if you look at our fair value increase, I think some of that was just incorporating the GPU revenue in the fourth quarter of this year. But I’d also note, too, this one still has even further upside potential. In our model, we don’t include all 6 gigawatts in our forecast. So, there could still be more upside if Meta does take down the full amount within that agreement.

Diageo Disappoints

**Dziubinski: **All right. Diageo’s stock DEO finished last week down more than 10% after the company lowered its guidance and reduced its dividend. And Morningstar trimmed the fair value estimate on the stock by just $2 to $116. So what’s Morningstar’s take on Diageo?

**Sekera: **Well, first, let’s just kind of break this down into two different parts. So, taking a look at the stock price and the stock movement, I’d say from a technical point of view, looks to me like there’s probably a large investor that just puked out whatever position they had from their portfolio. Huge amount of shares traded very quickly, looked like they were just hitting bids all the way down. Now, the stock did regain some ground on Friday. So that’s telling me that maybe that seller is out and out of the way. So hopefully, that’s taking some of the short-term pressure off the stock price movement.

Now, from a fundamental point of view, both sales and operating profit did fall 2.8%. The company lowered guidance. So now they’re only they’re looking for a 2% to 3% sales decline. They said they’re looking for a flat to maybe low-single-digit operating profit growth rate. In my opinion, if you’ve got sales coming down, I think flat is probably your best case in the face of the lower sales rate.

We did lower our fair value. We incorporated that lower guidance into our 2026 numbers. Our analyst did hold her medium-term targets unchanged, though. So if we see further downside in alcohol consumption, there probably is still some more risk to the downside in our fair value. But to some degree, I think we’re kind of hoping that maybe the new CEO’s may be kitchen-sinking results for now and expectations. Taking them down enough so that’ll be easier for the company to overdeliver over the next couple of quarters to try and rebuild that market confidence. Taking a look at the stock, it only trades at 14.5 times our 2026 earnings estimate. And so that’s why our analyst thinks the stock does look attractive here.

Devon Energy: Still a Pick?

**Dziubinski: **Let’s catch up on a former pick of yours that reported a while ago that we just haven’t had time to talk about. And you mentioned it at the top of the show, and that’s Devon Energy. So unpack the results and whether the stock is still one you like after earnings. I think you do still like it because you mentioned it early in the show, but you can reiterate that for us, Dave.

**Sekera: **Yeah, I mean, as far as like the actual earnings report goes, there was really nothing all that interesting to report, which is part of the reason why we hadn’t talked about it before. Now, we did trim our fair value, but it was only a 3% decline, so not necessarily anything meaningful. I think our analyst was just touching up his model. Maybe increased some forecasted costs higher. But again, not enough that it would change my view on the underlying story overall.

Looks to me like everything is tracking kind of as we expected. Company very focused on shareholder returns. I think that’s a big positive for this name. I think they increased the dividends slightly. They’re increasing their stock buyback program. So good returns for shareholders. Stock’s moved up nicely following earnings. It’s doing what it’s supposed to do in a portfolio as a hedge against some of the things we talked about earlier. 21% discount puts it in 4-star territory. So as far as oil prices and where oil is going, who really knows where that’s going to go in the short term? But even with kind of a negative view on longer-term oil prices, like our longer-term forecast for WTI is $55 a barrel, this company still models out pretty cheap here.

Blue Owl & Private Credit Risk

**Dziubinski: **Dave, private credit has also been in the news recently after Blue Owl OWL halted redemptions at a private credit fund aimed at retail investors. So let’s talk about what’s been going on in the private credit market that led Blue Owl to do that, and then what the ripple effects have been.

**Sekera: **Sure. But even before we get into that, just some background for people that don’t know exactly what the private credit market is. It’s certainly been the fastest-growing asset class in the markets over the past 15 years. Now, depending on how you want to run the numbers, it looks to us like it’s somewhere around $1.7 trillion in assets at this point. Now, a huge amount of that growth in the private credit market has been concentrated in middle market companies. Typically, what we’ve seen is that PE sponsors, private equity sponsors, when they’ve been buying out these companies, have been leveraging them up. And in many cases, at very high debt to EBITDA multiples. But these deals are often too small for the high yield and levered loan market, which is why we’ve seen this go into the private credit market.

But as you see, and this always happens in the markets, when something is doing too well for too long, it brings in too much new money. And when you have too much new money chasing too few deals, I think a lot of these deals had attributes that were just unattractive, they were overleveraged, had weak covenants, deals that just probably shouldn’t have gotten done, but people had money that they needed to put to work so they were doing it anyway. There is a really good article on Morningstar.com. The title is “Why AI Worries About Software Hitting Private Credit.” That, to me, is a really a great explainer article that has a lot more of the background information.

So what’s happening now? Well, credit quality in these deals has certainly been weakening. DBRS Morningstar has been warning really since early 2025, that they’ve seen the credit quality in a lot of these companies getting weaker and weaker. They’ve noted they’ve seen an increase in waiver requests and increase in companies breaking their covenants. They’ve noted that they’ve had a lot more downgrades than upgrades. A lot of these deals were getting weak enough that it required new capital injections from the private equity sponsors to keep these companies in business. And even with that the number of defaults have been increasing well over the past year. And now what we’re starting to see is that it’s becoming a large enough problem of credit weakening, enough companies missing or defaulting, that it’s really starting to impact the pricing of that part of the market overall.

Now, Blue Owl specifically, a lot of machinations have been going on there between the asset manager and a number of their different funds. But, as you noted, one of the private funds did close the gate, meaning that they halted redemptions within those funds. So at this point, they’re just going to return the money to those shareholders when, and if they can, when the positions are either sold or repaid or have to go through some kind of bankruptcy process. In my mind, I think this just exemplifies to investors the risk of using what is an illiquid asset in a vehicle that tries to provide liquidity.

Now, if you remember in our quarterly outlooks and our annual outlooks, it’s been a while now that we’ve recommended investors to steer clear of corporate credit risk, whether that’s been private credit market, levered loan market, high-yield market, even investment-grade market. When you look at where credit spreads are, we just didn’t think investors were getting paid enough for downgrade and default risk. In my mind, I still think there’s a lot more downside risk in private credit that could still yet to come. When I look at these type of transactions, the way that they’re structured, I think loss given default will be a lot lower or actually it’ll be a lot worse. You’ll get lower recoveries than you would in traditional levered loans and high yields. And I think as that comes through, you’ll see a ripple effect in the market, specifically in the corporate bond market. But what’s going to happen is you’re going to have less liquidity in that market, you’ll have less liquidity in the high-yield and levered loan market. And at some point, that will flow through to other asset classes, meaning you’ll just have lower valuations here, which means you’ll bring valuations down across all of the asset classes.

So, really, it just depends on how severe the downturn is here. It’s going to depend on if the economy weakens from here, how much the economy weakens. If we were to have a recession, if we have any kind of recession, I think a lot of these middle market companies are going to be in big trouble. And we would see a big spike in default rates there. So, depending on how severe that is, it could negatively impact the economy overall and the markets in general. So, really, a long-winded answer of saying, I think there’s a lot more risk here yet to come. I think there’s still more downside in the pricing in private credit yet to come. But to some degree, whether or not it’s going to impact markets overall, it’s probably going to depend on what happens with the economy over the next couple of quarters.

**Dziubinski: **So then, Dave, what should investors make of Blue Owl specifically? The stock pulled back after this news, of course, and so did the stocks of some of the other asset managers. And then, more broadly, doesn’t, reading between the lines, or not between the lines, you pretty much said that investing in private credit today is probably not the best idea. Is that fair to say?

**Sekera: **Well, that’s certainly my opinion. And when you think about an asset management firm and how they make money, I mean, they make money by charging a fee as a percentage of assets under management. And in this case, for Blue Owl, it’s going to be harder and harder to raise new assets under management. And in fact, if private credit sells off, then you’ll have declining assets under management, which means that you should expect then to see lower revenue going forth.

So personally, I’d still steer clear of putting any new money into corporate credit. I still expect that corporate credit spreads are going to widen out from here. And as you have the widening in private credit, that’s going to then lead to wider spreads in the levered loans, which then leads to wider spreads in high yield, which then leads to wider spreads in investment grades. I still prefer keeping your fixed-income asset allocation, specifically in US Treasuries. If you want to try and get some spread there, maybe move into some of the mortgage-backed securities, maybe some of the structured finance. But again, I’d still steer clear of anything to do with the corporate bond markets until you really get more of a wash out there.

Question of the Week: PayPal

**Dziubinski: **Well, our viewer question of the week is from Philip. And Philip points out that PayPal PYPL stock is trading near its 10-year low. Now, Philip is wondering what catalysts could drive the stock price up or down. And coincidentally, after we received this email, PayPal’s stock finished last week up more than 10% after media reports that may or may not be true suggested that the company might get bought out by Stripe. So clearly, one catalyst for the stock price would be PayPal getting bought, right?

**Sekera: **Exactly. Yeah. So, I mean, PayPal, when you think about the company, what it does, I mean, they are electric payment solutions specifically for online transactions. It’s actually a lot larger than I thought they would have been. I did take a quick look at it. They have over 400 million active accounts. But I think the real attraction here on PayPal is that they own Venmo. Now, I’ll be honest, I never really paid all that much attention to PayPal. I mean, this stock was an early pandemic play. The stock skyrocketed in 2020 and 2021. In fact, in 2021, it was a 1-star-rated stock. It just shot up way too high compared to our fair value. I think it peaked at about $300 a share. But like a lot of these pandemic plays, they’ve just been on the long-term downward trend ever since. Never be able to really meet those kind of fundamentals that would have been required in order to justify how high those prices went. A stock somewhere in like the mid 40s, right now, call it 46 a share.

Now, looking at the fundamentals here, it does look like they’ve been generally weakening for quite a while. And it really came to a head this past quarter. They ousted the prior CEO. The stock cratered, but it cratered enough, it’s fallen enough, that it’s now cheap enough to be a buyout target. It’s about a 40% discount to our fair value. 5-star-rated stock. We do rate the company with a narrow economic moat based on the cost advantage and the network effect, specifically, I think, for Venmo. As you mentioned, The Wall Street Journal did report that Stripe is either in the process or looking at potentially making an unsolicited bid for the company. That’s why we got that nice pop in the stock price. Now, we don’t have any information other than what The Wall Street Journal has reported. So, for now, we are maintaining our $80 fair value. And our analysts noted here the company’s trading at about 14% free cash flow yield, so that should actually be a pretty attractive yield for potential suitors. So I think that actually kind of supports our fair value at this point in time. So, we’ll see what happens here and whether or not they get that buyout bid.

**Dziubinski: **All right, well, Philip, thank you for your question. And, for viewers and listeners, if you have questions for Dave, send them our way. You can reach us via our email address, which is themorningfilter.com.

Why Value Is Outperforming

All right, it’s stock picks time. This week, Dave, has brought us five value stocks to buy while they still look undervalued. Now, before we get to the picks, Dave, talk a little bit about the rotation we’ve seen in the market. We’ve actually seen value stocks do quite well during the past few months relative to the broad market. So, what’s been driving that?

**Sekera: **I think we’ve talked about this on the show a couple times over the past quarter or two about how we’re seeing what I consider just to be fatigue among a lot of the AI stocks. And if you look over the past couple of years, value stocks have lagged well behind growth stocks to the point where valuations on a relative value and an absolute value basis looked very attractive compared to what we saw in the growth category. And to some degree, I think the market has also just been getting increasingly uncomfortable with the amount of you capital expenditures that the hyperscalers are planning on spending in AI. I think the market’s concerned that overall returns may not necessarily be high enough over the next couple of years to justify the huge amounts of money that they’re pouring into the AI buildout boom today.

A lot of concerns exactly how AI might be utilized, what services, what products could be disrupted, what products and services may end up actually just going away as AI gets rolled out. So I think that’s really been hitting the growth market and why a lot of people have been rotating into those sectors that, at least, for now, anyway, don’t look like they’re going to be impacted by artificial intelligence.

Stock Pick: CNH Industrial

**Dziubinski: **Well, then let’s get to the picks. Your first stock pick this week is CNH Industrial CNH. Give us the highlights.

**Sekera: **It’s a 5-star-rated stock. Trades almost a 40% discount to fair value, Medium Uncertainty, a company we rate with a narrow economic moat, based on switching costs and intangible assets.

**Dziubinski: **Now, CNH’s stock is having a terrific year. It’s up more than 30% already. So why do you think this one has more room to run?

**Sekera: **Well, specifically, the reason I picked that this week is, if you take a look at Deere, that was a pick of ours last year on both the April 14 show and then we reiterated it on the Oct. 20 show. Up about over 30% since then, so it’s now in 3-star territory. So I think this is really a good idea to swap out of Deere DE and into CNH, and I think CNH benefits over the next weeks, months, whatever, from a couple of these ongoing sector rotation trends, one into small-cap stocks, which we still think is one of the more undervalued parts of the marketplace, into the value category where you’re not going to get disrupted by artificial intelligence. CNH, for those of you that don’t know the company, it is the world’s second-largest manufacturer of agricultural machinery. That’s 80% of their business. The other 20% is construction equipment.

Now on the ag side, I’ve been watching ag prices. If you take a look at corn, wheat, soybeans, they’ve all been in a pretty good upward trend. So I think that should be a good precursor for a rebound in agricultural prices overall, which then should be good in order to help boost the agricultural equipment cycle. Taking a look at our model, we are looking for a rebound in revenue, but relatively gradually. We are looking for the company to get back up to the same revenue they had in 2023 by 2029. Looking for operating margins to rebound over that same time frame. A lot of concern here about tariffs, how that might impact the company. We think that they’re in a pretty good place. About two-thirds of their US goods are produced in the US, and the other third are imported from Europe. So I think this is an interesting one that’s a good swap candidate today.

Stock Pick: Omnicom Group

**Dziubinski: **Your second pick this week is Omnicom Group OMC. Tell us about this one, Dave.

**Sekera: **Omnicom is a 4-star-rated stock at a 26% discount. Now, it is a high uncertainty, but it does have a narrow economic moat.

**Dziubinski: **Now, Omnicom was, I think, a pick not long ago. The stock’s had some ups and downs this year so far. So tell us why you like it.

**Sekera: **Yes, we recommended this one on the Jan. 12 episode of The Morning Filter. And it kind of actually traded down in my face almost immediately thereafter. But then the stock had a nice pop after earnings. So I think it is up about 8% since we made that first recommendation. So now we already addressed kind of the overall investment thesis. I’m not going to reiterate that one this time. If you have an interest, you can go back to the Jan. 12 show, but just wanted to address what was going on with earnings.

So, short term, no major diversions from our expectations. What I like here is, I think the story here does have a good catalyst. It’s really about the acquisition of IPG, and that’s the reason for the re-recommendation here. Company has their investor day coming up on March 12, and I think that could be a good catalyst. I think, well, at least what we’re expecting is for them to provide guidance for 2026 and more specificity on their integration plans. So I think that there could be a good combination of revenue synergies, cost synergies, company may be divesting some noncore, low margin assets, that could all come together here and really help boost the story. In the meantime, the company only trades at 16 times our 2026 earnings estimate of $5.11 per share. We’re looking for 8.5% earnings growth thereafter. So not necessarily heroic growth assumptions, but yet trading at a pretty reasonable multiple in today’s marketplace. And I do think there’s some good upside potential here if we get some good information coming out of that investor day.

Stock Pick: Fresenius Medical

**Dziubinski: **Your next pick is a name I don’t think we’ve talked about before. So I think this is a new pick idea. Fresenius Medical Care FMS, walk us through some of the key metrics on it.

**Sekera: **Yeah, this is the first time I think we’ve recommended this one. It’s a 4-star-rated stock, 38% discount to fair value, pretty good dividend yield at 3.5%. We rate the company with a high uncertainty, but we do assign a narrow economic moat being based on its efficient scale and intangible assets.

**Dziubinski: **Now Fresenius, the stock’s in the red this year. Why isn’t the stock participating in this value stock revival we’re seeing? What do we think the market’s missing here?

**Sekera: **So 2026 is going to be a transition year for the company. And I think we have a differentiated view from what the market is currently pricing in. The company is the largest provider of dialysis in the United States, and they’re currently embarking on launching a new medical technology. We think that helps improve mortality and provides a competitive edge compared to their competitors.

I think there’s also a concern in the marketplace that GLP-1 drugs will decrease the need for dialysis. I talked to Julie at the end of last week. She’s our analyst that covers this name. And she said, according to what she’s seen, what happens is that the GLP-1 drugs do delay the need for when people will start dialysis, but it doesn’t eliminate the need for those people that will need dialysis over time. Taking a quick look at our model, we model in 4% top-line growth. Looking for a little bit of operating margin improvement and that gets us to an average 12% earnings-growth rate over the next five years. Yet the stock’s only trading at a 9 times forward earnings multiple and provides you a very nice dividend yield.

Stock Pick: Bristol-Myers Squibb

**Dziubinski: **All right, well, your next pick this week is a pretty familiar large-cap value name. It’s Bristol-Myers Squibb BMY, so give us the bird’s eye view on it.

**Sekera: **It’s only trading at 11% discount. It did take a nice pop, so it’s not as much of a discount as when we recommended this one a couple times in the past, but it is still enough. It puts it in 4-star territory, considering it is a medium uncertainty rated stock. Still very attractive, dividend yield at 4%. And the company we rate with a wide economic moat

**Dziubinski: **Now, Bristol-Myers stock is up more than 16% this year already. So why do you still like it?

**Sekera: **Yeah, to some degree, just because it does have such good momentum. Yeah, we did recommend this one a couple of times on the May 5 episode and the June 9 episode of The Morning Filter. I think it continues to keep benefiting from that rotation into the healthcare sector and that rotation into the value sector. Kind of the short story here, we’ve talked about this one in the past, we just think the market is probably underestimating the strength of the research and development pipeline, some of the drugs that they currently have in testing right now. So I think there’s a lot of potential upside here when and if those drugs are approved and rolled out. Yet from a value perspective, the stock only trades, I think, just under 10 times our 2026 earnings estimate.

Stock Pick: Zimmer Biomet

**Dziubinski: **All right, and then your final value stock pick this week is Zimmer Biomet ZBH. Tell us about it.

**Sekera: **Zimmer’s a 4-star-rated stock at a 24% discount, only has a 1% dividend yield. We rate the company with a medium uncertainty and a wide economic moat, that wide economic moat being based on switching costs and intangible assets.

**Dziubinski: **Now, Zimmer’s stock is having a pretty good year. It’s up about 9%. So refresh our memories on the story here, Dave. Why do you think it has more upside?

**Sekera: **Well, to some degree, also, it should benefit from that market rotation we’re seeing going on in the healthcare sector, in this case, a nonpharma healthcare name, which I like. And then it is a mid-cap value stock, so I’d look to see a benefit rotation into that group as well. Again, another one of these value stocks. In a sector which is not threatened by artificial intelligence. Investment thesis here, especially for a company like this, the aging baby boomers, just going to fuel solid demand for large joint replacement years, decade yet to come. What we like here is the company has been investing more into sales and marketing. I think that’s actually kind of decreased some of their operating margin performance here in the short term. But they are expanding into some adjacent markets, which will provide upside potential over the longer term. Specifically, marketing more into ambulatory surgical centers and outpatient settings, and that’s where we’re seeing increasing inpatient volumes. So I think that’s going to help benefit this company.

If I look at our financial model, five-year compound annual growth rate for revenue, only 3.6%. So not looking for any real strong growth from a top line. We are looking for gradual operating margin improvement, getting up to 28.4% by 2029. Yet that’s still below the management goal of 30%. So if management’s able to perform and do what they say they’re going to do, there’s still more operating margin improvement yet to come over what we’re modeling in. So, while we’re looking for a five-year compound annual growth rate over the next five years of 11%, I think there’s upside potential to that. Yet the stock’s only trading at 11.5 times our 2026 earnings estimate.

**Dziubinski: **Well, thank you for your time this week, 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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