4 Stocks to Buy Before They Bounce Back I September 21, 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 what's going on in the markets, the important things that investors need to have on their radars for the week, some new Morning Star research, and a few stock ideas. Now, before we get started this week, we have a programming note for our audience.

We will be dropping a bonus episode of the podcast this Thursday. Dave sat down with Morning Star senior analyst Will Kerwin to take a deep dive into one of Dave's recent stock picks, that's Broadcom. Dave and Will discuss Morning Star's outlook for the company, how Morning Stark has signed the company a wide moat rating given all the uncertainty around AI, and what a possible slowdown in AI spending could mean for Broadcom's future.

So, be sure to sure to catch it wherever you get your podcasts. All right. Well, good morning, Dave. Let's kick off today's podcast with last week's interest rate hike. Now, going into the meeting, the market, you know, seemed fairly confident that the Fed would raise interest rates. Yet, stocks still sold off after the meeting. So, what do you make of that? >> Well, I think you need to be really careful. So, yes, stocks did sell off after the meeting.

Then on Thursday, we had what I would just call an everything rally. I mean, everything seemed to do better on Thursday, and it was a very strong day. market held up pretty well on Friday and you know before market opened today it looks like everything is doing pretty well in fact I would say surprisingly strong this morning so in my opinion I mean all of the headlines all of the talk about chair wars talk and his tone and yeah everything that he was like trying to you know tell the marketplace to some degree you always have to realize a lot of that is just going to be noise you know here in the short term so yes the message he was trying to get across cost to the marketplace was that inflation is still too high.

It's been too high for too long. The Fed is willing to do whatever they need to do in order to restore price stability and so forth. If you look at their economic projections, they showed the upward division, you know, to the expected policy path. But at the end of the day, the Fed's going to end up always doing what the economy and the market forces them to do. So, as long as they don't make a policy mistake, you know, they're really what I would consider to be more a lagging indicator than they are a leading indicator.

So, looking forward, the market still a little unsure exactly what they're going to be doing here in October. Still over 50% probability of them, you know, hiking at that point. But I have to point out there's also a 40% probability of another hike in December. I mean, one month ago, that wasn't even on the radar that they would hike in December. I mean there's in my mind at least one more hike before the end of the year if not necessarily like even two.

So I guess you know the real question to the marketplace is why is there such a focus on inflation right now? And in fact if you look at core CPI that's actually lower now than when Fed uh chair Powell did the opposite and he had cut Fed funds rate by 50 basis points in September 2024. So again take this with I would say a boulder of salt. I'm not an economist. This is my purely non-economist opinion. But to me, it's all about the 10-year US Treasury.

So, at this point, we're still battling, you know, 5%. Some days it's a little bit over, some days it's a little bit under, you know, but back then when they had cut, they had a lot more room to make changes to ease monetary policy. Back then, the tenure was only at 3.7%. Now, if you look at the the 10-year today, the market derived like future inflation expectations are still really in the middle of the range they've been since 2021.

So, with the 10-year interest rate being higher, that means that it's really the market is requiring higher real interest rates after inflation than what we had had before. And to some degree, I think it's just a supply demand issue because there's just too much supply of new US treasuries that's going to be coming to market. There's going to be tens, if not hundreds of billions of dollars of new supply coming in order to be able to fund, you know, the AI buildout boom.

So, the market's pricing that future supply into expectations and people are just saying, "Hey, if we're going to have all of that still yet to come, you need to pay me a higher yield now in order to be able to compensate for that." So, the thing with inflation is that they have to keep inflation expectations from rising because if inflation expectations start to move up here, that's going to end up pushing that 10-year yield, you know, even higher.

So, right now, like the 5year 5year forward at 2.3, you know, let's just say that went up to like 3%. If people started pricing in like a 3% long-term, you know, inflation, that's going to take, you know, that 5% yield and take that, you know, all the way up to what, like five five and 3/4. And in fact, if that's going up that high, you're probably going to get an even higher real yield. So at that point, you're now over, you know, 6%.

So I think it's really a matter of you got to keep those inflation expectations from rising because any of that that starts to flow through is immediately going to push, you know, the 10-year Treasury even higher. >> So then Dave, you know, I was going to ask you about the 10-year Treasury topping 5% last week. Would that be the other thing that really sort of stood out to you last week or was there anything else that investors should really be mindful of given last week? >> No, I think you definitely really need to keep a close eye on the Treasury.

I mean, there's a huge battle that's going on right at that 5% level. Now, 5% in and of itself not necessarily, you know, that impactful from purely just a fundamental point of view. I think to some degree, you know, being over 5% in the low five area. I mean, the probably the greatest adverse impact is really just the negative sentiment that I think that drives for equity investors. But if yields stay there and they start, you know, continuing to creep higher from there, you know, the higher it goes, of course, the more material and negatively material impact it's going to have.

So I think to some degree you know you get fixed income investor or I'm sorry investors in general you know especially those that do like asset liability duration matching like insurance companies and pension funds you know they will continue to start reallocating more of their portfolios into fixed income and away from equity. So you have the negative technicals from that and of course you know if the equity market starts pricing in you know a higher rate higher rate of return required because you've got higher interest rates you know and you put that into your DCF model that in return lowers present values today.

So again it's really a matter of you know if that interest rate stays here and continues to creep higher then I think those kind of both fundamental you know as well as technical negatives really start to hit stocks. All right, let's pivot and look ahead to this week. We have a couple of companies reporting earnings that you're going to be watching and those are Costco and Darden restaurants. So, let's start with Costco.

Morning Star assigns the company the stock a $740 fair value estimate. Stocks lagging the market quite a bit this year. So, why is this one you're watching? >> Well, I think when you think of Costco, great company but expensive stock. So from a fundamental point of view, when I think about Costco, you know, you just have to recognize that their customers are going to skew to much higher income demographics and so they've been less affected by higher inflation.

So I really just kind of want to watch what customers are doing here because if you start to see customers at Costco really starting to dial back, that to me could be a pretty good indication that the economy might be in real trouble. Now, thinking about the stock overall, as you've noted, the stock has been on a bit of a downward trend, but from a valuation point of view, we still think it's overvalued. It's still a two-star rated stock.

Trades over a 20% premium to our fair value. Just took a quick look at our model here. I mean, we're forecasting 8% topline growth. I think that's a pretty strong, you know, topline growth, you know, estimate. We're looking for some additional margin expansion over the next couple years. In fact, we're even looking for that margin to get to, you know, new highs. So, between that, we're getting the over 10% earnings growth.

Yet, the stock is trading at 43 times our 2026 earnings estimate, trades at 40 times our 2027 earnings estimate. So, I don't know with this one, I mean, with that stock already being on this downward trend, any miss here, I would be very concerned about that stock gapping down with those high of a multiple. >> All right. Now, Darden is actually having a pretty good year, the stock. Uh, Morning Star assigns it a $156 fair value estimate, but shares are, you know, trading well above that.

So, same question here, Dave. Why is this one you're watching this week? >> I really like watching Darden because this is a perfect example of being able to see what, you know, consumers are actually doing as opposed to what they're saying. And the thing with Darden that really gives you this good perspective across really the entire consumer base is that they serve a lot of different types of consumers when you look at their demographics.

So first of all you have the Olive Garden that's about 43% of their total sales. you know, the demographic there is going to be much more middle inome households and that part of their business has really been able to benefit over the past, you know, year or two just because you have been having, you know, a pretty good amount of trade down from, you know, dining and it's a very good value proposition. Now, you move up a little bit in the demographics to the upper middle inome households and you have Longhorn Steakhouse.

That's 25% of their revenue. Really, that's what I would consider the value proposition within the stake category. So, it's an area that they're still really marketing towards being what they consider an affordable indulgence. And then lastly, you know, those brands they have Capitol Grill, Ruth's Chris, Eddie Ves, and so forth. That's their fine dining business. That's 21% of their revenue. So, again, very much more upper income households that have been able to really benefit from the asset appreciation we've had in the markets over time.

So, it's interesting when you look at and really watch for any changes in behavior among any one of those demographics. And I think that can give you a really good indication of, you know, what might be happening in the economy as opposed to listening to what consumers, you know, are saying that they're doing. Now, I also have to mention too, if you look at the restaurant coverage, we've expanded our coverage there quite a bit over the last couple of months.

So, you I'd say take a look, you know, on morningstar.com, whichever Morningstar platform you use. Yeah, we've got new coverage on Cava, Shake Shack, Jersey Mike's, Dutch Brothers, Texas Roadhouse, and I think a couple of others. I'd say the takeaway here that to me is most interesting is when you look at our valuations, generally I think a lot of these restaurant stocks are overvalued at this point. Really, the only exception would be Wingstop and um I think it's uh Chipotle is the other one, which of course, you know, have been two stocks over the past, I don't know, like 12 to 18 months.

You and I have been warning, you know, investors multiple times just how overvalued those were. They've now come down enough that they're getting into like that fair value category, maybe even starting to look a little bit undervalued here. You know, personally, I wouldn't want to try and catch a falling knife in those stocks. But again, I think it's interesting looking at our restaurant coverage across the board and just seeing that I think the market's getting a little bit too comfortable with what's going on with those stocks and pricing in too much growth and too much earnings growth for too long.

All right. Well, let's pivot over to some new research from Morning Star. And uh we're going to review some of the earnings reports from Dave's former picks list from the past quarter that we just haven't had time to get to until now. So, uh let's start with LAR. Dave, LAR was a pick of yours on the August 24th episode. Uh it was one of your undervalued stocks to rent. Uh the stocks pulled back after earnings. Morning Star held its $120 fair value estimate.

So, what's your take on LAR today? So I mean overall I would say the results were not necessarily surprising. They did miss you know both on the top and the bottom line. But if you look at the stock performance after the results came out you know they actually I think traded up slightly on the day which tells me that the market had already expected these weak results but then you know it took a hit on Friday. In fact, all of the home builders, you know, were down somewhat substantially.

And I think that was just in relation to the 10-year US Treasury was starting to climb back up, you know, to that five handle once again. And of course, you know, mortgage rates are going to still climb. So, I think the market at that point was really just pricing in much more of a a weak housing market, you know, more than anything else, you know, over the longer term. Now, as far as, you know, the stock evaluation, it trades at a 36% discount to fair value, more than enough to put it in that fourstar territory.

So, again, talking about like stocks to rent as opposed to own, you know, this is one where I think it's really more of like a leveraged play on interest rates than anything else. So, once interest rates, you know, start to come down, that's when this stock is really going to perform. It'll perform, you know, very quickly until it gets up to fair value. But until then, it's going to be one of these lagards, especially if interest rates were to stay here, you know, or even climb higher. >> All right.

Now, RH was another one of your stocks to rent on that same episode of the podcast. Stocks down more than 5% since reporting. Morning Star's fair value estimate on this one is $258. So, Dave, run through the results for us and tell us tell us if this is still a stock pick, one to rent after earnings. Yeah. And again with this one, I think it's just that the negative macro dynamics were that much more important to the marketplace, you know, than what we saw as far as as far as the the fundamentals in this one.

So, I mean, when I look at what this company reported, you know, I think their earnings were better than expected. They raised guidance, you know, if you look at their 2026, you know, outlook for sales, they increased that to 5 1/2 to 7%. You know, the prior guidance was, you know, 4 1.5 to 8. their EBTA margin. You know, we're now looking at 15 to 16.2%. So that's an increase from, you know, 14.2 to 16%. So overall, I mean, all of this was in line with our model model forecast.

But again, the market just didn't care. I think there's just too much overhang from the ongoing weakness, you know, in the housing market. Yet the stock is at a 50% discount, five-star rated stock. So again, I think this is one where you really need to see that rebound in the housing market. And once that happens, this will be, you know, a quick leveraged play on the housing market recovery. But we do need to see, you know, interest rates, you know, starting to come down for that to start to work. >> Now, Viva Systems reported in late August and Morning Star reiterated its $287 fair value estimate on the stock at the time.

Now, Viva was a pick way back in 2024. So, what do you think of it after earnings? Well, and if you think about how this one has performed, you know, if you remember like back in 2024 when this was a pick on the March 11th episode, you know, we went over a whole bunch of small cap stock picks, you know, since then. And they generally did pretty well thereafter as small cap valuations, you know, came up, you know, faster than what the market valuations came up.

So, this is one where it rose pretty quickly up to that three star territory by mid 2025. And honestly, once it hit that three star area, it just fell off my radar until it started dropping. And it dropped pretty significantly this past spring. In fact, if you remember on the May 16th podcast, that was our question of the week where, you know, our viewer was asking you whether or not its moat was at risk. So, from our point of view, when you look at how much that stock had started selling off, it was really in relation to all of the software stocks.

We just had, you know, that big blood bath in all the software stocks. Everyone thought that software companies were going to be disrupted or displaced, you know, by artificial intelligence. You know, we think the death of software, you know, is greatly exaggerated. That stock fell all the way back down to about half of our fair value. But over that same time period that the stock was falling, quarter results, like a lot of these other software stocks, remained pretty strong. you know, this past quarter, taking a look at our note, you know, company reported both 18% topline and 18% earnings growth.

They noted they had multiple new customer wins. So again, I think this one is a really good example of like the overall software space and how that market sentiment kind of really whipped, you know, these stocks around. All of these software stocks have been climbing right back up over the past couple months. So this one's now back to, you know, fair value. Trades only a couple dollars below. So again, right in that three star territory. >> CNH Industrial has also been a pick of yours, actually several times on the podcast.

Morning Star signs this one, a $21 fair value estimate, and shares are up quite a bit since the company reported in early August. So what's sort of been driving that runup in the stock? And does it still look like a pick from your perspective? >> Well, I think it's really a combination of not just only the fundamentals, but the macroeconomics that we see going on in the agricultural markets today. So from a fundamental point of view, we like to see that they tightened up their 2026 guidance to the high end of what their prior guidance was.

You know, they're looking for margins between, you know, 5 to 5 1.5%. You know, in their construction business, that's also doing, you know, very well. So overall, you know, earnings is now, I think, expected to be like between 41 and 46 um cents, you know, for this year. It looks expensive from a valuation point of view. I think that's about like 31 times earnings where the stock is trading today. But looking forward, you know, management noted that they're seeing a lot more industry indicators normalizing.

Things like new and used inventories are getting back towards more normalized levels. The spread between new and used equipment also normalizing. And in fact, they also just said that replacement demand alone is normalizing to the point that that's going to cause the company to increase production. So, we're looking for a pretty big rebound in earnings in 2027 for a dollar a share. So, at this point, the stock's only trading a little bit above, you know, 13 times 2027 earnings estimate.

The other portion of why I think the stock has run up so much really over the past couple weeks to month or so is because it is a leverage play on agricultural prices overall. So, if you look at like corn, wheat, soybean prices, they've all been rising pretty substantially. In fact, if you look at corn, that's now up to last I saw like 530 a bushel. That was as low as 410, you know, midsummer. So, I think all of that provides a very good tailwind for demand for agricultural equipment of which this company will benefit to a very large degree.

All right, let's talk Northrup Grumman. Now, Morning Star trimmed its fair value estimate by 10 bucks after the company reported in late July. So, the fair value now is $630 per share. So the stock's kind of been up and down since then. Yeah. So what's been going on with this one, Dave? And would you say it's still a pick today? >> So I mean, first of all, when I think about that fair value cut, yes, you never like to see the fair value cut in a stock that you're interested in.

But to put that in context, I think that's only a one and a half%, you know, decrease, you know, in the fair value. So overall, I would say this really is no change to our investment thesis. In fact, I think all this was was really just kind of, you know, dialing in our earnings expectations, you know, for growth beyond 2030. And of course, when you get to be, you know, that far out with a stock like this, it's not going to really change the fair value today all that much.

As far as, you know, what's going on here fundamentally in the shorter term, I mean, 2Q sales were up 5%. The problem is that you did see this dip in the operating margin, but that was really just because the company wrote down, you know, some costs that were higher than expected in the missile program and extended, you know, profitability for the period was a little bit lower. So again, it wasn't necessarily a change in the investment thesis.

It was really just I think more like accounting changes than anything else. Now, we are still looking for some of their programs like the Sentinel and the B-21 to accelerate over the next couple quarters. We think that bodess well for the company's ability to meet our forecast for the year. So, we still think the stock looks attractive. It's still got very good long-term tailwinds behind defense spending, not just in the US, but in Europe and pretty much all of the developed markets.

Trades at a 16% discount to fair value. Little bit under a 2% dividend yield. Personally, I'd like a little bit higher than that, but again, with that discount, it's enough to put it in that four-star territory. It's a stock we rate with a medium uncertainty and we rate the company with a wide economic moat. >> All right. Now, Hasbro was a pick of yours in spring of 2025. Morning Star held its fair value estimate on the stock at $100 after the company reported in in July.

So, you know, it's been a while since we talked about Hasbro. What's been going on with the name and would you still consider it a pick today? >> Yeah, I mean the stock really kind of has acted like a pendulum. So, again, it was, you know, significantly undervalued. I think it was the April 28th episode in 2025 that this was a pick. Stock rose, you know, over 70%. In fact, it hit $106 per share this February, which was above our fair value of $100 a share.

So, that would have been a great time to do, you know, some profit taking. Since then, it has retreated. It's now back into the mid70s um following the US strikes. And now, we've had another bounce back up to 88. So, again, this one has been, you know, swinging back and forth. So, it's been one where you could actually kind of have some good entry points, some good points, you know, to take some fair value, take some profit off the table and then kind of back into it.

As far as, you know, fundamentals here, you know, looking at earnings, you know, they did beat, they did raise, they increased their 2026 guidance. You know, they're now looking for sales growth of 5 to 7%. You know, beforehand it was 3 to 5% operating margins. They're now guiding the 25 to 26%. you know, that's up 1% from a range of 24 to 25%. And, you know, we were already really kind of forecasting, you know, that same kind of sales growth, but that's a little bit higher operating margin.

So, while our fair value, I think, was, you know, pretty steady here, I think there's still some upside potential, you know, if they're able to hit those operating margin targets. >> All right. Scott's Miracle Grow was a pick a couple of times in 2025 and then again on the March 23rd show. this year stocks down more than 20% since reporting in July. Uh and at the time the company reduced guidance. So at the time Morning Star reaffirmed its fair value estimate of $80 on the stock.

So what do you think of it today Dave? >> This is an interesting stock in the perspective of looking how it trades in the short term as well as what I consider over the longer term. So in the short term as you mentioned it's been a really volatile stock. I mean, it was, you know, a four-star stock when it was trading in the low 50s. You know, it was in, I don't know, above 70, went to three star, and, you know, now it's back to its lows again.

But if I look at the how this stock has performed, you know, going all the way back to like mid2022, I'd say it's in that generally, you know, $50 to $70 range and kind of has been trading back and forth, you know, several times. So, as you mentioned, I think the real question with this one is, is this a value trap? And let me just kind of walk through, you know, why we don't think it is, but it looks like one here in the short term.

So, the market hates nothing more than seeing, you know, earnings contract. And when earnings are contracting, you know, people just want to get out. Of course, everyone's looking for, you know, growth stories. And we are forecasting the operating margin to contract, you know, next year. A lot of that just due to, you know, higher commodity and chemical prices, higher transportation prices. A lot of that due to the conflict of Iran and really what's going on in the Middle East.

So, we are looking for earnings to decline in 2027 down to $49 per share down from $435 here in 2026. So, based on 2027 earnings, the stock's now trading at under 13 times our 2027 estimates. So it re it really does look cheap as long as you expect earnings to recover. So in my mind and I think about this stock, it is a 2028 story right now. So if you open up our model and take a look, we are looking for 2.5% revenue growth.

We are looking for margins, you know, to begin improving once again. And that's really just going to be based on a combination of, you know, prices increasing, catching up with inflation, more normalization in energy and chemical prices and so forth. And so then we're looking for, you know, earnings of $4.69 in 2028. And we're looking for it to then to continue to keep growing, you know, thereafter. So if they are able to hit what our expectations are, I do think this stock is very undervalued.

So, I'd say the good thing about this stock for now is that you are clipping you a 5% dividend yield. You know, according to our write up here, our analyst noted the company does plan to maintain that dividend. And then once their leverage ratio belows uh falls below four times, they'll then start using free cash flow in order to um repurchase shares as opposed to uh paying down debt. And we expect that probably happens sometime in the next couple of quarters.

So once you get them repurchasing shares especially when the shares are at such a large discount that adds you know economic value plus from a technical point of view I think that helps put in a floor on the stock but again as an investor I think you really have to look at this as being much more of a 2028 story than even a 2027 story. >> All right so be patient. All right it's time for our question of the week. Now, as a reminder to viewers, if you have a question for Dave, you can send it to us via our inbox, which is the morning filter at morningstar.com.

But actually, Dave and I took this week's question from the YouTube comment section on last week's episode of the podcast where people were talking about Tesla as one of Dave's picks last week. Now, one viewer in particular noted, and I'm paraphrasing this just a little bit, Dave. For Tesla, you didn't discuss a single point about financials. Why is that? Why is that? Why is that the one company that no one seems to care about?

Revenue, profit, margin, forecasts, none of it. I know robots and self-driving cars and Elon good, but eventually the rubber has to meet the road and something has to be shipped. No. All right, Dave, what's your response to that? >> Oh, well, you know, one thing about this podcast, man, our our audience, they really keep me honest with this kind of stuff. So, I mean, I have to be perfectly honest. At the end of that last podcast, I actually had more notes, you know, up here to talk about Tesla, but I'll be honest, man, I actually was just kind of running out of steam on >> not enough coffee. >> Yeah.

So, I was just running out of steam. So, so I did pull up my notes from the lab last podcast and I did dig a little bit deeper into the model. So, I might bore some people with some of the numbers here, but we'll get into it to a little bit more depth. And of course, you know, if you have an interest, you can always go to, you know, whatever morning star platform you you use and really kind of get into more of the fundamentals here.

But I think, you know, the first question you really need to answer is, you know, why is Tesla stock down at 19% year to date? And so our analyst when I talked to him last really noted I think there's really three key aspects that he thinks the market has been disappointed by. So first has been the robo taxi roll out. It's been much slower than what the market was expecting. I think at this point they're only in you know seven of the nine cities that they said that they were going to be rolling out in.

And even within those seven I think there's a lot fewer cabs they're actually operating than what the market had been expecting. Second, if you look at the Optimus robot, that also has been recently delayed. Once again, that's for their third generation. And I think one of the problems here with, you know, and again, not to bang on Elon, but really, I think to some degree, the market always wants to have you underpromise and overd deliver.

And I don't think Tesla or Elon Musk has really learned the art of the underpromise, you know, overd deliver. And so I think between you know what's going on with the robo taxing optimist that's really been a lot of people maybe taking some profit off the table if they have profit or maybe just kind of you know losing faith here. And then the third aspect that our analyst was talking about is that they do have a pretty significant ramp up in capex spending.

But again that's really just to be able to build out new factories to support long-term growth. you know, building more battery capacity, you know, building more AI compute, which we do think will add value to the stock, you know, over time. And in fact, we still think Tesla is probably one of the best, you know, long-term realworld plays in actually utilizing artificial intelligence to be able to drive um, you know, economic value over time. you know, specific things like, you know, the transition, you know, from cars and batteries to autonomous driving, like the full self-driving and the robo taxis, as well as, you know, when the humanoid robots really come true fruition in the future.

So, we want to get into numbers. Let's get into some numbers. So, from 2027 through 2031, our analyst, you know, does break out all the different segments. He models out you know the individual revenue and the cost of goods sold for each individual segment. So as far as like the autos go you know we are forecasting revenue to increase an average of 17% over that time frame. So from 2027 through 2031 and that's really based on looking for an average increase in total deliveries of 14.6% on average. the balance between, you know, how much we're looking for auto deliveries to increase and the total segment revenue, I think is really, you know, much more, you know, software sales, you know, built in for the full self-driving software.

If we take a look at the energy generation and storage business, so over that 5-year forecast period, he's looking for average revenue growth of 30%. And then lastly, for the services and the other segment, he's forecasting average revenue growth of 30% there as well. Now, as far as the operating margin, I'm just going to get into the blended margin as opposed to each individual segment, but we are looking for the operating margin to be 8.2% in 2027, but expand all the way up to 24.7% by 2031.

And I would say probably the biggest difference there is because you're going to have a huge amount of mix shift in much higher margin businesses than the auto segment. So, for example, the auto segment, we're expecting that to be 65% of total sales in 2027. That drops down to 52% in 2031 because those other segments are expected to grow that much faster than autos. So, getting down to the bottom line here for earnings, uh we are expecting a $1.95 here in 2026, which means that stock is trading at 187 times 2026 earnings estimate.

Even with the amount of growth that we're looking for in 2027, looking for $322 in earnings, that's still 113 times on a multiple basis. By 2028, you know, we're looking for $5.90 per share. Still 62 times 2028 earnings estimates. So again, you really got to believe the long-term growth. Really got to buy into, you know, some of our projections here. So we're looking for earnings in 2031 to get to $17.78. So again, now the stock is trading at a much more reasonable multiple of 20 times.

So then at that point you got to consider okay from 2031 and thereafter you know what kind of growth can you expect from there? Does that 20 times you know look undervalued as a 5-year forward multiple. So in our model if I look at our 2031 through 2035 projections we are still looking for an average of 25% growth thereafter. So that 20 times multiple on 25% long-term growth does look attractive. So again, this is a believe me story when you really have to believe in, you know, the long-term potential of, you know, how Elon Musk is running this.

Really believe in like the robbotoxies and the expectation for the humanoid robots, you know, over time to really become a meaningful portion of their business. And if you do, then yes, the stock does look, you know, very undervalued today. >> And just to build on that, you know, we Morning Star does assign Tesla a very high uncertainty rating. So, even though it is trading well below the $450 fair value estimate, it's three stars right now.

So, to Dave's point, you have to kind of believe really believe in the story and and that it's going to pan out on the on the positive end of that high uncertainty, not the negative one for it to be for it to be that opportunity today. All right. Well, it's time for the picks portion of this week's podcast. Now, this week, Dave's brought us four stocks that have recently pulled back that he thinks look attractive. So the first one up today is Proctor and Gamble.

Give us the highlights, Dave. >> Sure. So PNG is currently a four-star rated stock, right at that border between four and three star. Trades at only a 5% discount. Has pretty healthy dividend yield at 3%. It is a company we rate with a low uncertainty, I think, as most people would expect, which is why you don't need that much of a discount from intrinsic valuation to start looking attractive. And of course, we also rate it with a wide economic moat. that mode being based on cost advantages and intangible assets. >> Now, you pointed out that Proctor and Gamble, you know, the stock isn't terribly undervalued right now.

So, why is this a pick at this price? >> Well, if you look at our longer term, you know, price to fair value chart. This one actually had been a two-star rated stock for a pretty long time. And at this point, you know, that stock price is close to where it was trading all the way back in mid2020. So in my mind, I think of Proctor and Gamble as being a core holding type of stock, but of course, you have to buy it, you know, at the right price.

And this is just one we had not been able to recommend in the past because it had been, you know, overvalued. And, you know, it's finally at the point where the price and the valuation make sense. And again, thinking about those kind of stocks I looked at as being, you know, core holdings for most portfolios. wide moat, low uncertainty, you know, attractive dividend yield at 3%. And not only attractive at 3%, but if you look at their dividend history, they just have a consistent history of, you know, raising it every year.

And in fact, I would suspect that they probably continue to raise it at least at the same rate of inflation, if not even slightly higher than inflation over time. Looking at some of the other aspects here, very strong balance sheet. Looks like they're rated, you know, AA3 minus exemplary capital allocation. So again, it's one where, you know, it's finally starting to look, you know, attractive here. Uh when I look at our model forecasts, you know, I think they're probably pretty modest.

I mean, for the most part, we're just looking for, you know, inflation and maybe low singledigit volume growth, only looking for kind of modest operating margin expansion. And lastly, good consumer defensive stock going to be one of the ones that's going to be least affected by kind of the macroynamic headwinds we've talked about the past really month or so. So, if we did go into any kind of riskoff environment, I think this one would do well if the rest of the market's in kind of that riskoff, you know, downward trend. >> All right.

Well, your next pick this week is another consumer name. It's Hershey. Tell us about it. >> So, Hershey's trading at a 25% discount to fair value. That's enough to put it in five-star territory. It is one that we rate with a low uncertainty as well. Attractive dividend yield at 3.4% 4% and we rate with a wide economic moat also based on cost advantages and intangible assets. >> Now you know there are kind of a lot of undervalued stocks in that sort of packaged food snack space because of course these companies have been facing headwinds.

So then what do you like about Hershey specifically? >> Well, this is one we've recommended a couple of times and it's bounced around enough that this is one where you've actually been able to trade this one around, you know, quite a bit. So if you had that core holding, you were able to dollar cost average in, you know, to the downside and then it would move, you know, back up, you were able to take some profit off the table.

So historically, I mean, this is one where again, I hadn't been able to recommend it too far in the past because it used to trade at a pretty large premium to our intrinsic valuation. you know, it got hit in the second half of 2024 into the first half of 2025 because cocoa prices were rising at just astronomical rates because of some issues, you know, in the cocoa market. And in fact, you know, this stock was also a five-star stock, you know, as recently as early 2025.

Now, it then rallied, you know, too far to the upside. In fact, it was a twostar rated stock in early 2026. And once again, it's now fallen enough, you know, to the downside that it looks pretty attractive. Just a quick synopsis on the company itself. One of the things I think is a really positive here for investors is that they have, you know, the highest market share in the US. They've got 36% market share. You know, the next closest competitor is going to be Mars at only 29%.

But once you get away from those two, you have really low market share across like the remaining branded and private label competitors. So, a little bit of a duopoly, you know, kind of business. So, I think between those two, you know, they're able to do a pretty good job managing, you know, pricing, you know, in the marketplace cuz between the two, they have such a large market share. Now, chocolate in and of itself, as you get to, you know, like you're talking about how a lot of these other food companies, you know, have been negatively impacted by GLP1s.

I don't think chocolate as a category has been as negatively impacted because to some degree purchasing chocolate is much more of an indulgent type of purchase. Has a lot of emotional connotations to it. And it's also much more tied to like holidays, gifting, celebrations, you know, small treats for consumption and things like that. So again, this is one of those categories that hasn't been hit nearly as much. And then if you look at Hershey, like some of their other categories like gum and mints actually tend to do well as more people are on GLP1s because then they enjoy like having that flavor without actually having to consume something.

Just a quick look at our forecast and our model here. We're looking for a 5-year compound annual growth rate for revenue of 3.8%. We're looking for operating margins to recover back towards historical norms. Yeah, even if you look at our 2030 forecast for operating margin, it's still below what the company actually did in 2024. So, we're not even getting back towards, you know, peak margins in order to get this company to be looking, you know, pretty attractive here.

So, overall, we're looking for 12% earnings growth. Taking a quick look at where the stock is trading, it is trading at 20 times or 2026 earnings estimate. That falls to 17 1.5 times or 2027 earnings estimate. And with that 3.4% 4% dividend yield. I think it just looks like a pretty solid value play today. >> All right. Now, your next couple of picks are from the tech sector. First up is Marll Technology. Give us the highlights on this one. >> So, Marll is a four-star rated stock.

Trades at a 19% discount. Of course, it's a tech stock. So, we have it rated as a high uncertainty as you would expect. And a narrow economic mode on this one. Still not bad. Narrow mode, you know, in the tech sector, I think, looks pretty attractive. and that narrow moat going to be based on switching costs and intangible assets. >> Now, you and I have talked a bit about Marll several times before on the podcast and it seems like I don't know in general, Morning Star is often more bullish on the stock than the market seems to be.

So, what sort of underpins that? >> Well, first of all, I mean, first when I think about like Marll, you're right. I mean, there were times that the market had been overly bearish on the stock and of course that was what gave you kind of that buy opportunity. I think we highlighted this one on both the March and the May 2025 episodes of the morning filter. And since then, I mean, the stock had just been on a tear. It was up, you know, over 300% got into two star territory.

And now, once again, we think the market is being overly bearish, you know, based on a couple of things that are going on that we don't think are going to play out. So, we do think it's now overcorrected once again to the downside. So, first of all, for those of you that don't know Marll, it's a networking chip designer. It's the number two market share for those specific type of semiconductors. And I'd say the short story here for investment thesis is we think they have a differentiated portfolio of silicon across the entire data center chain for artificial intelligence.

We see broad-based demand across, you know, their custom chips, the interconnect chips, you know, the switching products and so forth. And you know, the company's recently announced, you know, a new agreement with Google that further adds, you know, upside to our long-term growth forecasts. So, kind of quickly running through the numbers here, you know, the company reported 8.2 billion in revenue for fiscal 2026, which recently ended.

That was a 42% increase in revenue year-over-year. We're looking for a 49% increase in revenue. We're forecasting 12.2 billion for fiscal year 2027, which is what we're in now. And then we're looking for that actually to accelerate. And I think that's probably one of the most attractive parts of this story is looking for not only that kind of revenue growth, but for that kind of revenue growth to accelerate the next couple years thereafter.

So for 2028, we're modeling in 18.5 billion in revenue. That's a 52% growth rate. And then for fiscal 2029, a 58% growth rate, which gets you to 29 billion in revenue. Now, as far as earnings, we're modeling $4.28 for fiscal 2027. Puts you at 50 times a multiple, but that drops to below 30 times by fiscal 2028. Yet, we're looking for a 5-year compound annual growth rate of 54%. So, this actually puts you in kind of that GARP, that growth at a reasonable price, you know, kind of context, you know, as far as like what some of the catalysts might be to really kind of help bolster, you know, this stock price in the short term.

Uh it appears they have their investor day on October 6th. We're looking for them to maybe give more guidance as far as what their financial targets are through 2030. Looking for more details on the ramp up and their business with Google. And I think if we get those two things, you really could see some strong stock performance thereafter. >> All right. And then your final pick this week is ASML Holding. So run through the key metrics on it.

So, it's currently a four-star rated stock at an 18% discount. Another tech stock, so of course rated with a high uncertainty, but we do rate them with a wide economic moat based on cost advantages, switching costs, and intangible assets. >> Of course, you know, here we have an example of another really volatile stock pick in ASML. So, why do you like it today? >> Yeah, I mean, it's been a very volatile stock. I mean, it was a buy a couple of times, I think, in the first half of 2025.

Yet that stock then rallied, you know, over 170% by June 2026, which was enough to then at that point put it into two star territory. Like a lot of these other stocks, you know, it has sold off and now we think it's overcorrected too much to the downside. You know, what does the company do? They're the ones that actually make the equipment, which is then used to make semiconductors. So of course huge tailwind in this business specifically for the high-end equipment that they specialize in which is what is used to make artificial intelligence semiconductors where we still see you know the amount of demand for those AI semiis well outpacing you know the amount of supply out there.

So very strong tailwind you know for their equipment. Just taking a look at our own forecast here. You know, we're looking for 34% revenue growth this year. Another 28% revenue growth in 2027. You know, earnings for 2026, we're looking for that to be $3712 puts it at a 42 times multiple yet it goes down to 30 times in 2027 when we're looking at, you know, $51.67 in earnings. So, another one for a company where we're looking for 5-year compound annual growth rate of 27%.

You know, that 30 times multiple in 2027 looks pretty reasonable and again, it's enough to put you in kind of that growth at a reasonable price area. >> All right. Well, Dave, thanks for your time this morning. Now, viewers and listeners who would 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 morning for the Morning Filter podcast at 9:00 a.m.

Eastern, 8 a.m. Central. In the meantime, please tune in to the bonus episode that we're dropping on this Thursday about Broadcom. Um, and of course, also like this episode and subscribe. Have a great week.