3 Stocks to Sell and 3 Stocks to Buy for September I August 31, 2026 transcript

Hey. 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 recent market activity, what investors should have on their radars for the week, some new Morning Star research, and a few stock ideas. Now, we have a programming note for viewers. We will not be airing a new episode of the morning filter next Monday, September 7th due to the Labor Day holiday, but we'll be back bright and early on Monday, September 14th, just in time for that next Fed meeting.

All right. Well, good good morning, Dave. Let's kick off today with some of your key takeaways from last week's market activity. >> Good morning, Susan. Well, if we're on the topic of the Fed, I mean, the first thing to review will just be the statement that the new Fed chair Worsh provided at the end of last week. Turns out he's a little bit more hawkish than I think the market had expected. So, if we look at the futures market, the market's now pricing in a hike, you know, sooner rather than later.

I think this morning it's over a 60% probability the Fed's going to hike at the September meeting. You know, a week ago, I think that was only a 40% probability. Either way, it's a 90% probability they'll hike at least once by the December meeting. But in my mind, I don't think it really matters. I mean, whether they hike in September, the October meeting, the December meeting, I don't think in the big grand scheme of things which month they hike really is going to make a difference, you know, in the marketplace.

Honestly, when I think about the market activity last week, it was about Nvidia. Nvidia and did I mention Nvidia? Now, I know we'll address Nvidia earnings specifically later in the podcast, but I think really when you think about Nvidia and why it's such a driver of the market, it's not just because of the size of the market cap of the stock, but really when you think about artificial intelligence and you think about the AI buildout boom, they have really the most comprehensive view of any other player in AI out there.

So, if you think about it, they've got the best visibility into all of the AI platforms. They have relationships with Anthropic, OpenAI, XAI, all the big, you know, AILLMs out there. They have relationships with all of the hyperscalers. They have relationships with everybody that's building data centers. You know, essentially when you think about AI, Nvidia touches the entire AI economic chain. So that's why I think Nvidia earnings and their conference calls are so important because really you get that big comprehensive view of what's going on across all of those different segments as opposed to a lot of the companies that really only talk about the individual market that they're in.

So, I'd say the big takeaway following Nvidia earnings from our analyst team and looking at the valuations of all of the AI stocks overall, even though a lot of those commodity oriented tech hardware stock beginning a month ago, you know, they're a lot lower than where they were, we're still cautious and a lot of those stocks. But if you look at those who are at the leading edge of AI, such as Nvidia, we still think they have a lot of room to run for now. >> All right.

Now we also saw you know some movement last week in software stocks. So talk talk a little bit about that. >> Sure. So I think the market is just finally starting to get comfortable with the thought that the death of software you know has been greatly exaggerated >> now. I'm sorry having a little problem with my voice. So yeah just a little bit more coffee here. So our investment thesis on software has been for quite a while you know even in the face of these software stocks you know having fallen for the past you know 12 to 18 months that generally software companies are incorporating AI into their own products and services they're adding more economic value to their clients and yes a lot of these smaller very nichy software providers you know might be at risk you know the big large major platforms are not going away clients are not going to replace those software providers by trying to vibe code their own platforms.

It's just too much of a major business risk, you know, to a disruption of their own business. And at the end of the day, I still think there's a lot of economies of scale of using these outsourced vendors as opposed to trying to do it in-house. >> All right. Now, we also saw cyber security stocks have a pretty good week last week and that also, you know, ties back into that AI theme, right? >> Exactly. So when I think about AI, I mean yes, it's providing this huge boost, you know, because of the AI buildout boom, but you know, kind of behind the scenes, you've also seen a big expansion in IT budgets across the board for cyber security due to AI.

And that's showing up in the results that we're seeing for the past couple of quarters. We're also seeing it show up in the forward guidance a lot of these companies are giving. You know, overall, this is not just a one or two quarter story. We still think this is a multi-year tailwind behind us. And in fact, our analyst team is looking for an acceleration of cyber software spending all the way into 2027. >> Talk a little bit more about cyber security.

We know that's been a favorite industry of yours. Uh but it's been a while since we've discussed it. So we have Pella Alto and Zcaler reporting this week and we had Crowd Strike and Oaka report last week. So give us an update on the industry and some of the stocks. Are you still enthusiastic here Dave? I mean this is one where I think you need to separate the business dynamics from the valuation. So overall I still look at the business dynamics of the cyber security industry is really one of the most attractive spaces to invest in right now.

But stocks have just been on a tear thus far this year. So it's hard to know at this point you know which of these stocks is starting to get to be overextended here versus which ones still have you a lot more room to run. So I'm just going to run through you know some of our actions. you know, thus far this earning season. So, if you look at Fortnite, we raised our fair value after earnings to 143 a share from 108. You know, that was a stock that was a pick of ours on September 22nd, 2025.

The stock has more than doubled since then. You know, even after raising our fair value, it's now a three-star rated stock. Octa, you know, that one we raised our fair value to 200 a share. That's up from 124. That was a stock pick, you know, a number of times back in 2023, reiterated in 2024. You know, since those picks, you know, that stock has more than doubled. It's now a three-star rated stock as well. Cloudflare, you know, we raised our fair value to 266 from 235.

That is now a three-star rated stock. Crowd Strike, you know, we bumped up our fair value there to 152 a share from 133. You know, that's a twoar rated stock. That's one we think is still a little overextended here. And if you remember back, you know, in March of this year, you know, we talked about an ETF. So for those investors that didn't want to be taking the risk of buying individual cyber security stocks, I highlighted um an ETF.

Its ticker was Bug Bug. I mean, that stock is up, you know, 74% since then. You know, as you mentioned, we've got Palo Alto. They report tomorrow after market close. Zcaler on September 3rd. When I think about, you know, the valuations on these stocks and I think about, you know, what's been going on in cyber security overall, I think the risk here is still more to the upside than to the downside. >> All right. So, at three star rating, though, put them more on the watch list, right? >> You know, there's a lot of momentum in these stocks.

So, if you want to if you want to go into these stocks, you know, being long, I'm not going to argue against that. But that's just my own personal opinion. But yes, a three star rated stock, you know, technically means that we think it's trading within that valuation range that is pretty close to fairly valued on a riskadjusted basis. >> Got it. All right, let's pivot over to the week ahead on some economic numbers. We have non-farm payrolls coming out.

Now, the market often makes a big deal about these numbers, but anyone's who's been watching or listening to our podcast knows that you're not a big fan of these numbers, but are you going to be watching them, Dave? And if yes, what are you going to be looking for? I mean, yes, I'll have to take a look at the numbers when they come out, but overall, I just think that the payroll's numbers are just generally very lowquality information, especially when you're thinking about the economy overall.

I mean, these numbers are revised multiple times after they're released. Often times, they're revised by pretty big numbers. So when you get anyone to individual read and it shows, you know, strength, weakness, you know, whatever, a lot of times that added strength or weakness that you thought was in that payroll report gets revised away, you know, months or years later. So I'll watch it. I'm really watching more what the trend is necessarily than any one individual month, you know, post. >> All right.

Well, earning season is winding down, but we do have a couple of companies you're watching this week. Starting with Broadcom. Uh, Morning Star assigns Broadcom a $650 fair value estimate. Shares are trading way below that. So, first, what are you going to want to hear about? And second, do you think there's any reason to buy Broadcom stock ahead of earnings? >> So, when I'm thinking about this earnings report, it's not necessarily about the specific numbers to me when I'm looking at the results.

I think the real big thing to be listened for is a combination of one, not only are they not losing clients, but they're still bringing in new clients as well. So, the first thing we want to hear about on the not losing clients front is really just get confirmation that the deal between Marll and Google is more about Google actually multissourcing its semiconductor needs as opposed to potentially replacing Broadcom as its supplier over time.

And then on the new customer front, you'll be listening there pretty closely. I know our analyst team is hearing that Broadcom has been bringing you know more new customers onto its platform. So we're hoping to hear you know more details about that. But when I think about Broadcom overall and our investment thesis I just have a quote here from you from our analyst team. So quote Broadcom's growth potential over the next two years is being undervalued with 20 gawatts of capacity for open AI and anthropic alone creating the potential for 400 billion in cumulative revenue.

So overall, we think the company's guidance has been pretty conservative. I think that to some degree has hindered kind of the near-term stock appreciation in the AI play. So as soon as management provides, you know, an increase to that guidance, I think the guidance right now is for more than 100 billion in AI chip revenue in 2027. I think once they increase that guidance and the market gets comfortable that, you know, they're continuing to supply Google and some of their other existing clients and see some new clients, you know, coming online, I think that could be a really big catalyst for this stock. >> All right.

Now, Lululemon also reports earnings this week and stocks having a pretty tough year. It was a pick of yours back on the March 23rd episode of the morning filter. Now, Morning Star assigns Lululemon stock a $280 fair value. And again, shares trading well below that. So, do you still like the stock, Dave? And what are you gonna want to hear about? >> Yeah, unfortunately, I think I read the situation wrong as far as when I made my first recommendation, you know, into the stock.

So, the stock peaked at the end of 2023. It had fallen 68% by the time that we first recommended it on the morning filter. At that point, it was trading well in the five-star range. And our analyst team had noted there were several different catalysts out there that they thought, you know, should support the stock and lead to a turnaround. Since I made that recommendation first, I think the stock's fallen another 25%.

So obviously, we were very wrong about the timing here. Now, over the same time period, you know, the analysts did reduce their fair value. They cut it to 280 from 295. So again, not a huge percentage reduction, but again, you never like to see us cutting our fair value at the same point in time that the stock, you know, has been falling as well. You know, at this point when I open up our model, I still don't think that our forecasts are anything really, you know, too strong for what the company should be able to post.

So the 5-year compound annual growth rate for revenues is 4.6%. So a combination of, you know, inflation plus a little bit of new product growth. We're looking for a gradual recovery in operating margins. We think 2026 will be the low as far as margins and then still grow from there to what will be, you know, below kind of their historical operating, you know, leverage or um averages. So, we're looking for 12% earnings growth on a 5-year compound on annual growth basis.

Stock only trades at 10.8 times our 2026 earnings estimate, only 9 and a half times our 2027 earnings estimate. So, if we get any signs of acceleration in North America, I think that'd be very welcomed by the marketplace. And I think this is one that at such a low valuation really has the ability to to run once we get some good news here. >> All right. Well, hopefully we'll get some this week. We'll see. All right. Let's cover some new research from Morning Star about a few tech companies that reported last week.

And of course, we have to start with Nvidia. Uh the stock was up more than 8% after earnings and Morning Star increased its fair value estimate on the stock by $30 to $310. So Dave, unpack those results for us and tell us what led to that fair value increase. >> Sure. I mean, as far as the numbers go, very strong quarter. You know, second quarter revenue came in at 96 billion. That's up 106% year-over-year. You know, comparatively, their guidance was for 91 billion.

So again, just huge growth numbers on a year-over-year basis as well as still easily beating, you know, the guidance that they provide to the marketplace. You know, the guidance for this quarter is to grow again, going up to 108 billion. That'd be a 89% increase on a year-over-year basis. Coming into the quarter, the consensus was for 105 billion. So, you know, still over pro or underpromising and, you know, over overproducing, you know, as far as that goes.

Now, the real focus this quarter wasn't necessarily that quarterly guidance. It's going to be this new fiscal 2028 revenue guidance for next year. So, they're looking for a 70% increase in revenue. So, that put their revenue at about 700 billion according to, you know, our numbers. You know, our prior estimate was 570 billion. So still just huge numbers that this company is putting up even on top of you know already really large numbers you know that they've had.

The only negative this quarter would probably be the reduction in their gross margin. Uh they're forecasting a decline for it to go from 75% to 74% this quarter falling as low as 71.5% in the January quarter. you know for fiscal 2028 looking at 72 and a half percent but really that was just due to the sharp rise that we've seen in memory prices it's nothing that really concerns us you know from a valuation perspective so overall I'd say when we think about the industry and Nvidia kind of the color that it's giving right now you know one thing that they highlighted is that their own forecast for the top five US hyperscaler customers they're looking for them to spend $1.3 trillion on AI capex next year.

So, a big bump up from what they're spending, you know, even this year. And then lastly, you know, one of the things we've talked about on the past couple shows is the concern that we've seen in the marketplace just about the amount of commitments and the guarantees that the company has made. You know, I talked to Brian Klo. He's our equity analyst that covers the company. He's still very comfortable with the disclosure and the rationale that Nvidia has been providing to the marketplace. you know, when he looks at his own forecast for Nvidia and we look at our forecast, you know, across our AI coverage, you I'd say our team really just thinks that the industry is growing into those future purchase and lease obligations.

So, not a concern from their point of view. >> Now, Nvidia is trading at a pretty big discount to fair value as it was heading into earnings. So, how's the stock look valuation wise today? Is it is it still a buy? >> It is still a buy. Trades at a 30% discount to our fair value. puts it well into four-star territory. >> All right. Well, Marll Technology stock fell 10% after the company reported what seemed like pretty good earnings.

So, Dave, you know, kind of what happened here and tell us if Morning Star made any changes to its fair value estimate, which was $217 before earnings. >> Yeah, honestly, I'm not sure why the market puked all over Marvel stock, you know, like they did. I think this is just one of those cases where the good results just weren't necessarily good enough for the marketplace. Revenue was up 37% year-over-year. They increased their fiscal 2028 guidance by 10%.

And even more importantly, you know, management provided a view towards even more and, you know, even stronger growth, you know, past fiscal 2028 than they've provided in the past. So when I think about our investment thesis, I think just a synopsis of it would be one, we think the company has a very differentiated portfolio of silicon across all the different needs for data centers. We're seeing broad-based demand across their custom chips, their interconnect, their switching products and so forth.

And most recently, the company announced an agreement with Google, which further adds, you know, more upside to their longerterm growth forecast. So in this case, you know, while the stock was falling in the marketplace, we went the other way. We raised our fair value up to 300 per share from 270. And that was really just due to increasing our medium-term growth forecast based on the information provided you from this earnings report.

Stocks at almost a 30% discount to fair value puts it well into that fourstar range. So I'd say with this one I would say look forward to their investor day on October 6th. We think that could be a potential good catalyst for the stock. you know, we're looking for the company to provide some more financial targets through calendar 2030. Looking for more details on the ramp up with that business for, you know, Google chips.

So, with all of that company coming and the stock trading at those low levels, you know, this could be another one that has, you know, more room to run to the upside. >> All right. And then lastly, Salesforce shot up more than 20% after earnings last week. So, what drove that pop in the stock? I think it's like what we talked about last week and I think you know the market saw what we wanted to see. I mean it was just a solid quarter and again they just put in quarter after quarter of kind of that solid topline growth.

In this case revenue was up 11% which is towards the upper end of the guidance that management's provided in the past. But even more encouragingly I think we're seeing more and more signals regarding demand and adoption of their AI products. In fact we're looking for more revenue acceleration in the second half of the year. So I think it's just a matter of the market's finally coming around to our view that AI is not going to totally displace you know the software sector.

Software companies are using AI to become more economically value added to their clients. And so I think it's really exemplified this quote from our equity analyst. Quote claude force the newlyannounced anthropic partnership reinforces Salesforce strategy of serving as the governed data and workflow layer underneath multiple AI models and interfaces. Customers will be able to use Claude on top of Salesforce without replacing Salesforce as the system of record. >> All right.

Well, Sal Sal Sal Sal Sal Sal Sal Sal Sal Sal Sal Sal Sal Sal Sal Sal Sal Sal Sal Sal Salesforce was a pick of yours on the June 29th episode of the Morning Filter and it's up more than 50% since then. So, you're looking pretty good on this one, Dave. Uh, so Morning Star assigns the stock a $280 fair value estimate. So, is Salesforce stock still attractive? >> Well, first of all, I'm not looking good on this one, Susan.

I would say our analyst and our analyst team is looking pretty good on this one. >> Fair enough. >> Yeah. So, stocks only trading at a 7% discount. Only has 7/10en of a percent dividend yield. So, it's a three-star rated stock, but in my mind, it may not yet be time to start selling this one. You know, it's still below fair value. Still very good, strong upward momentum. I think a lot of investors out there probably underown software names.

And if the company continues along the trajectory that it's on, personally, I wouldn't be surprised to see some fair value increases coming over the next couple quarters. That's just purely my own speculation, you know, at this point. You know, having said all that, I mean, earnings growth rate in our model, our 5-year compound annual growth rate is 13%. So, you know, pretty strong, but the stock's now trading at 18 1.5 times our 2026 earnings estimate.

So, you know, the stock price and the valuation is starting to get pretty full. It's not nearly as cheap as it was, but again, this is one of those cases I think you maybe kind of just let the momentum continue to keep working for you for a while here. Let it to go further into that overvalued territory before you start doing any profit taking, but just my own opinion. >> Okay. Well, on to our question of the week. Now, as a reminder, if you have a question for Dave, you can send it to us via our email, which is the morning filteringstar.com.

Now, this week's question comes from a longtime viewer, JC. JC wants an update on the trade desk. Stocks down 64% this year. Morning Star slashed its fair value estimate from a high of around $60 at the start of the year, down to about $16 now. So, is it time to throw in the towel on this one, Dave? >> Well, before we get to that, let's just actually kind of review some of the background here. So, you know, this has been a sell recommendation a number of times over the past couple years.

In fact, this was one of the most overvalued stocks as compared to our valuation under our entire coverage as recently as December 2024. And really the reasoning why we had such a differentiated view from the marketplace. Our analyst noted, you know, a couple of things. One, just some very high-profile fee disputes with major ad agencies, you know, Publix, WPP, Omnicom, you know, rising competition. They were losing market share.

And this was one that we actually were concerned about, you know, how AI may disrupt or displace, you know, their business. So, since December 2024, the stock has now dropped from, I think, of about 120 per share to now $13 and change. Took a quick look at our model over the weekend just to see what we're forecasting. So, right now, we're looking for revenue, 5-year compound annual growth rate, 3.7%. We're looking for some operating margin expansion going up to 18.7% by the end of our forecast period up from 13.2% this year.

And to put that in context, it's not back to its historical highs, but it's definitely on the high end of the range. You know, over the past 5 years, it's ranged as low as 7.2% up to 20.3%. So there might be some more margin expansion potential there, but I think we're already giving the company, you know, some pretty good credit as far as getting back to more normalized, well, actually high end of normalized, you know, operating region.

Um, uh, earnings is expected to decline this year. We think that's the low as far as earnings goes. So it's going to average 12 and a half% growth thereafter. But yet the stock's trading at 17 1.5 times, you know, this year's earnings. our stock, you know, fair value $16. So, I think it's a matter of trying to understand what does a threestar rating mean? And I think a lot of times, you know, people get, you know, confused with what that means.

So, if it's a threestar rated stock, as a long-term investor, I would say you should expect results that would be in line with the company's cost of equity in the model if the company performs in line with our forecasts. Now in this case we assign the company very high uncertainty and the cost of equity in our model is 10%. So as you know far as what to do with this stock today of course I can't give you know personalized you know advice.

I don't know what the investors you know situation is. I don't know how it fits in their portfolio what they might have as far as like you know gains and losses. But how I think about this type of situation overall, you know, our whole goal here is to look for and invest in those stocks that they're trading at pretty significant margins of safety below fair value. You know, when you are able to buy below fair value, we think that does a couple things.

One, it provides that cushion. So, if our investment thesis is wrong, things don't pan out the way that we think, you know, there should be less downside as the stock's already trading below intrinsic valuation. And you know if you just have like any kind of market general selloff in that case these stocks should sell off less than the overall market. So in this case I think this could be a pretty good opportunity to sell or at least a portion of it even though it is a three-star rated stock which means you should generate you know 10% cost of equity type returns and in this case you can use those capital losses to offset gains where you might have elsewhere.

I think one of the biggest questions we get from you know investors today is what to do with some of these stocks that they have you know hundreds or thousand% you know type of you know gains and they don't want to have to pay you know taxes on them. So in this case maybe sell a portion of it today watch for any potential upward momentum you know if you get that upward momentum moves into twoar territory I think that would be then a great opportunity to exit you at higher levels.

All right. Well, it is time for the picks portion of our program. And today we're talking about three stocks to buy and three stocks to sell in September. And as Dave and I were saying before the show, we can't really believe we're talking about September already, but we are. All right. So Dave, how did you arrive at the buys and sells that we're going to talk about? >> Well, I mean, generally, if you look at the results, you know, historically over a long enough time period, you know, September historically is the weakest month of the year for the US market.

Now, of course, past performance, not an indicator, future po performance, yada yada yada, all those kind of disclaimers, you know, and I'm not necessarily looking for any big, you know, huge sell-off this September. But, you know, we did want to position that if we did have any kind of selloff, you know, we want to be in those sectors that historically have performed the best. And so, for buys, you know, we screen for stocks that it's really kind of the same screen I typically go for.

Stocks that are four or five stars have an economic moat whether wide moat ideally you know I prefer those stocks with low or medium uncertainty but certainly willing to buy high uncertainty stocks if you have enough margin of safety. Took a quick look through you know the charts on those stocks that came up after we went through that screen. And in this case, I just ended up picking a handful of those that I thought it looked like a pretty good market setup based on the charts, based on those characteristics if the market were to have any kind of general pullback in September. >> All right.

So, let's start this week with your buys for September. Now, your first one is from the consumer defensive sector. So, first tell us why you like consumer defensive stocks in September. Well, and this is one you have to kind of differentiate between the consumer defense of stocks versus the consumer defensive sector overall. From a sector perspective, we think the sector is overvalued because of Walmart and Costco. And we've talked adnauseium about why we think those stocks are so overvalued and how it skews the sector valuation too high.

But in this case, when we look at a lot of the individual stocks, we think a lot of the stocks in that sector are undervalued. So now in a September sell-off, historically the consumer defensive sector tends to do pretty well. Investors will rotate, you know, into those defensive sectors where they sell off less, you know, to the downside. So that's how I ended up coming up with, you know, the consumer defensive sector pick. >> All righty.

And then your stock pick in that sector is Manderly, which we've talked about on the podcast before. So why do you still like the stock? Yeah, I mean as among among all the different food names which generally are undervalued, it's still my top pick among the food names. It's a four-star rated stock at a 19% discount, pretty healthy dividend yield at 3.3%. We rate the company with a low uncertainty and a wide economic moat.

I think the first time we made this one as a pick was on October 27, 2025. We've re-recommended this stock, you know, a couple of times. I think we highlighted it January of this year when the stock had slipped a little bit but you know we still had you know a very positive view on the long-term trajectory you know for the company. Fundamentally Manderly has been performing better than most of the food companies. If you took a look at you know last quarter they had 2.2% organic sales growth.

North America that was 3.4% organic sales growth which was a sequential improvement from the first quarter. Now Europe still pretty weak. I'd like to see, you know, maybe Europe at least stabilize, if not necessarily turn around. But when I think about Manderly and why Manderly is my top pick, its emerging expo emerging market exposure is still the basis for why I think it's the best pick of the food names. You know, 40% of the total sales of that's, you know, 7.4% sales growth in the second quarter.

As a long-term investor, we think that's where the most growth is going to come in the food sector globally over the next couple of years. Took a quick look at our model revenue 3.3% 5-year compound annual growth rate. We're looking for continued margin expansion off of their lows more towards historical averages. So after this year, we're looking for 9.2 earnings growth, you know, from 2028 through 2030. Trades at 20 times, you know, this year's earnings, but that drops to 18 times next year's earnings.

So still a very attractive you know name in our view. >> All right. Now you also like utility stocks in September. So walk through your rationale. >> I mean utility stocks is just one of those classic defensive sector names very stable earnings. You high dividend yields. So I think when people are looking for kind of that riskoff trade, you know, utilities is just a natural go-to for a lot of parts of the marketplace.

And historically, you know, the utility sector has outperformed the S&P 500 generally in September. >> All right. Now, your pick in the sector is Alliant Energy. And actually, Alliant has been one of your top dividend stock picks for 2026. And we talked about it a little bit in a bonus episode of the podcast in July. So, if you're a dividend investor and you missed that bonus episode, take a look for it. So, Dave, remind us why you like Alliant.

So the stock is currently a four-star rated stock, 12% discount, pretty healthy dividend yield, 3.2%. Like a lot of utilities, we rate with a low uncertainty and a narrow economic moat. You was also recommendation on the January 12th episode of the morning filter. And I think the market is just giving you kind of that second bite of the apple on this one. You know, it went from $65 a share up to 78 because of rising interest rates over the past couple of weeks.

It's now fallen back to 68, which then puts it back into that fourstar territory after going up into three star territory. And for those of you that might have missed, you know, some of the times we talked about it earlier, it's a regulated entity. It's a parent of two regulated utility companies, you know, Interstate Power and Light, Wisconsin Power and Light. Generally, we're forecasting, you know, earnings growth to come in at the high end of management uh guidance, which is for 5 to 7% growth through 2027.

We expect, you know, growth to accelerate, you know, thereafter. That's based on the company's, you know, updated four-year capital investment plan. That's up 24% from its prior plan. You know, they are benefiting from data center construction. So, we think that provides, you know, some additional growth as well. >> All right. And then of course you like healthc care stocks in September and again that's another defensive traditionally defensive sector, right? >> Yeah.

I mean, healthcare one has just had some pretty good momentum here the past couple of months. So I'm hoping that momentum carries through September as well. But you know historically it's a defensive sector and it's outperformed you know when you have yeah any kind of downturn either in the economic cycle or just any kind of general market selloff >> and your pick in the healthcare sector is Baxter. Why do you like it? >> So Baxter is a four-star rated stock.

Trades at a pretty healthy discount to intrinsic valuation. So the margin of safety there is 35%. Now they did cut their dividend I think it was maybe a year ago. closer than 1 cent per share. So, not necessarily attractive. You know, from that point of view, we rate the company as a narrow economic mo based on switching costs and intangibles. And fundamentally, and I think we talked about this on a recent episode, you know, their second quarter numbers are finally starting to look better.

So, both revenue and earnings in the second quarter came in, you know, much better than expected. Management increased their guidance. They gave a earnings range for 2026 of $1.95 to 215 a share. So the stock at that midpoint's only trading at 12 a.5 times earnings. Overall, our analyst has noted that she sees, you know, early su early success relative to expectations as far as the new management team improving operating efficiencies.

And our model, I don't know, seems relatively conservative. 5-year compound annual growth rate of revenue only 3.4%. We're looking for operating margin expansion going up to 12.5% by 2030. That'd be up from the lows of 6.2% this year. So that really only gets them back to kind of historically normalized averages. Looks to me like the stock bottomed out earlier this year. Getting pretty good momentum. Uh we're seeing higher lows.

So I think this one set up pretty well. Right. Let's pivot over to three stocks to sell in September. All of which are from sectors that have historically underperformed during the month. We'll talk tech first. Why is this one to tread lightly in in September? >> I mean, as you would expect, if you have any kind of market selloff, you know, the high growth stocks, in particular, tech are the ones that usually sell off, you know, the furthest and the fastest to the downside.

So, I think that's why tech as a general sector would be one you probably want to tread lightly on. Having said that, we do still think there's a number of individual AI names that we like, but certainly a sector that, you know, if you had the market sell off, probably sells off most. Then I'd also just note here that if we did have, you know, any kind of increase in interest rates, that's certainly been on the radar.

If the 10-year were to start hitting like a five handle and go over 5%. My big concern with the tech sectors because it's generally growth stocks. Growth stocks have very long duration. The reason just because you know the free cash flow that really is the basis for the valuation is all further out into the future. If you start discounting that free cash flow at higher rates that just naturally lowers the present value you'd be willing to pay for those stocks today. >> All right.

So you have two stocks that you're suggesting selling in September from the tech sector. Both look way overvalued and we've talked about these both before as sells. SanDisk and Sienna. So remind us why their sells today. Just taking a look at the valuations of these two stocks. You know, SanDisk is a two-star rated stock. Trades at almost a 50% premium over fair value. And that's already after hitting its highs and starting to roll over.

It's a company we rate with a very high uncertainty, no economic moat. Sienna, similar story. Two star rated stock, 40% premium, very high uncertainty. We do rate it with a narrow economic moat, but in this case, when I look at the two companies, I still think they're really just generally commodity oriented tech hardware. You know, at some point, supply is going to end up catching up with the demand that we have. You know, a lot of these companies are already, you know, redesigning or redeploying a lot of their assets to increase supply for those company, those products that have, you know, the highest margins and have, you know, the most demand out there.

A lot of these companies are already building new capacity, building new facilities. In fact, our analyst team is forecasting that 2028 will be the peak as far as earnings for all of these tech commodity type of companies. So, in this case, you know, the upside leverage that you've been experiencing to the upside at some point that, you know, leverage is going to work the exact opposite to the downside. You know, once you have enough supply, prices are going to fall, margins are going to contract.

I think earnings drop like a rock and then on top of that you'll have multiple contraction at the same point in time. >> All right. You're also a little leery about consumer discretionary stocks in September. Why? >> I mean it's twofold. One, if you do have any general market selloff, you know, this is going to be one that's going to be, you know, falling to the downside faster than the broad market averages. But it's also just because the consumer discretionary sector is going to be much more economically sensitive.

So, I would expect that to underperform to the downside just because if you do get a negative, you know, wealth effect with the markets going down, I think you'd see a lot of these stocks get hit pretty hard. >> All right. And then your stock to sell here is Brinker. Now, I don't think we've talked about Brinker on the podcast before, or if we have, it's been a really long time. So, tell us about it and why it's a sell. >> You're right.

I don't think we have talked about Brinker in the past. And the reason that it's coming up now is because this stock has had such a big run. It's now trading at a 66% premium puts it well into one-star territory. We rate the company with a medium uncertainty and a narrow economic moat. That narrow economic mode really being based on the fixed cost leverage that the company gets by being able to spread out costs across a very large restaurant chain.

Now, in this case, we think a medium uncertainty means we should be able to better model free cash flow further out into the future than we would a lot of other companies. So, with that medium uncertainty, I don't think a stock should trade that far above its fair value. Now, given that we do already rate it with a narrow economic moat, that means we also incorporate in our model that the company will be able to generate excess returns on invested capital for at least the next 10 years before being competed away.

So when I think about the dynamics of our valuation, I think we're already giving it, you know, a lot of benefit here in our model that we think the market is taking, you know, way too far. I opened up our model over the weekend. We're looking at a 5-year compound annual growth rate of 4% for revenue. You know, we're looking for peak operating margins this year at 10.6% fading to 9.9% by 2030. Just to put that in context, the historical average for this company was 6.5%.

So they're already operating at margins well above what they've modeled, you know, in the past. I mean, the restaurant business historically is just a low margin business, a very tough business. So it's one that if we have any kind of economic downturn, I wouldn't be surprised to see, you know, those type of margins evaporate pretty quickly. You know, we're looking for earnings growth after this year of 7.3%. Yet the stock trades at 21 times earnings.

So market is pricing in significantly more growth. significantly more operating margin expansion than what we currently forecast. >> All right. 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. Now, as a reminder, we won't be airing a new episode of the Morning Filter next Monday due to the Labor Day holiday, but we hope you'll join us on Monday, September 14th for a new episode of the Morning Filter at 9:00 a.m.

Eastern, 8 a.m. Central. In the meantime, please like this episode and subscribe. Have a great week.