3 Stocks to Sell and 3 Stocks to Buy for November I November 2, 2026

[00:00:00] Sarah Hansen: Hello and welcome to the Morning Filter Podcast. I'm Sarah Hansen sitting in for Susan Jubinski who's on leave for a few more weeks. I'm here on Monday mornings to talk with Morningstar Chief US Market Strategist Dave Sequeira about key takeaways for investors in today's market, what to keep on your radar this week, some new Morningstar research, and of course, a few stock ideas. Hey there, Dave. Good morning. [00:00:50] Dave Sequeira: Good morning, Sarah. How are you doing? [00:00:53] Sarah Hansen: I'm doing great. I got an extra hour of sleep I don't know about anyone else, but I slept great. Well, we had a pretty kind of dramatic end to the week last week, didn't we? Let's start in the stock market. So walk us through what happened. What had investors so spooked that we were seeing all that red in the charts? [00:01:13] Dave Sequeira: Oh, nice use of the word spooked going into Halloween. Thank you. Yes. No, it's just what happened was all of the AI stocks really got hit from multiple different angles. So taking a look at the different stocks that reported that week, you had Alphabet, that's the parent of Google. They missed consensus expectations on both the top and bottom line. And then Amazon came out. They also missed on the top and bottom line. So both of those misses really raised a lot of concerns among investors that these companies might not necessarily be able to start monetizing just the vast amounts of money that they're spending on CapEx as quickly as what people originally thought. And among the semiconductor stocks, Intel came out. Now they actually beat expectations, but the stock just got walloped. And really what happened there is that they had much weaker than expected guidance. And that led to fears that the data center build outs may be less than what's currently contemplated. And that brought down all the other semiconductor names, including Nvidia and AMD. And then lastly, we had some of the commodity oriented technology hardware companies report. So for example, you had SanDisk again. They also beat consensus expectations, but the numbers that they provided failed to live up to even what was higher expectations in the market. Yeah. That stock just got hammered and that pulled down all of those commodity oriented tech names. So to some degree, I think it's what you and I have already been talking about for the past couple of weeks. Anyways, I think the market is just becoming more and more interested in how companies are actually utilizing AI as opposed to just building AI. And in this case, if the monetization of AI is slower than what's expected and you're not going to be able to generate those returns that people are expecting on these names, then yes, a lot of these stocks, especially those commodity oriented tech names are overvalued. [00:03:00] Sarah Hansen: Thanks, Dave. Yeah. It is very interesting to watch that story unfold kind of week after week in real time. We have a lot of earnings on our docket for this episode, another marathon. And I know we'll get into this story a little more when we get there, but let's stick with AI for just a minute. Right after we filmed our episode last week, we got a very highly anticipated public filing from Anthropic, their S1, ahead of their listing. You know, I know we had a ton of details in there and our analysts are working through it. But for now, what should investors know? [00:03:32] Dave Sequeira: Well, exactly. So we do have our analyst team working on coming up with the valuation for Anthropic. I think pricing is expected in the first half of November. So I think our valuation, we're hoping to get that out as early as we can here in November. And when we do, I'll record a podcast with the analyst. We'll do a deep dive into his projections once he's published his valuation. So be on the lookout for that, you know, coming up. The only real takeaway I have at this point, since we don't have a valuation is I know that there's been a lot of commentary in the marketplace about the company looking for a $2 trillion valuation. I don't know exactly how much of that company they plan on IPO-ing. A lot of times it's only like a 5%, not necessarily a huge percentage of the company, but at a $2 valuation, 5% is still $100 billion. I'm curious, where's $100 billion of cash going to come from in order to be able to buy that stock? And again, you know, we'll see. [00:04:28] Sarah Hansen: We will see. That is a very big number. Sure. And I'm really looking forward to your deep dive. And before we turn ahead to earnings, we shouldn't forget a recap of the Fed meeting that we had last week. You know, not many surprises on interest rates. They left rates unchanged as they were widely expected to do. But we did get some new commentary from chair Kevin Warsh. So what are the important takeaways there? [00:04:50] Dave Sequeira: I don't know what the important takeaways were, honestly. I tried to listen to the press conference and after a while he just ended up sounding like the teacher from the old Peanuts cartoons, you know, the wah, wah, wah, wah, wah. I heard a lot of words, very little detail. I mean, the only thing that could be a notable change, which I don't think is a notable change, is that in 2027, they're still going to have eight meetings. But now one of those is going to be what he calls a strategy meeting. So there's not going to be any policy change or statement. It's much more intended to be, you know, more longer term discussions about what's going on with monetary policy and the economy. So we'll see. I mean, the other seven meetings will still be policy meetings. So there will still be, you know, a live, you know, potential changes, you know, to monetary policy and the statement. But honestly, I don't think it really changes, you know, anything at all. I mean, even if one of these is a strategy meeting, depending on what's going on in the world at that point in time, I still think that they're going to act when and if needed. [00:05:50] Sarah Hansen: Great. Yeah, it's been interesting to watch the market kind of get its arms around this new leadership and figure out what's signal, what's noise, what's words, what's not. So one to watch in December. Stay tuned, I guess. All right. On to earnings. We are still in the thick of third quarter earnings season. We've had more than half the S&P 500 report already and plenty more to come this week. And I suspect Wall Street will be watching very, very closely, given what we saw on Thursday and Friday of last week. So let's start with Apple. Morningstar assigns a $290 fair value to that stock. What's the story for Apple ahead of earnings? [00:06:26] Dave Sequeira: Well, the stock's performed very well here going into their earnings report. And to some degree, I think with Apple, the reason it's performed so well is it's been able to benefit from the non-AI or the anything-but-AI trade. The reason being is Apple really hasn't spent that much money on building out AI like a lot of these other companies have. So to some degree, I think people look at Apple right now as being a tech stock without the AI downside risk. Now, having said that, it might be a pretty tough quarter for them. The things I've been hearing is that the uptake on the new iPhone are pretty sluggish. I've had a lot of reports out there of problems with the new iPhone Duo. That's the foldable phone. You're having problems with, you know, cracking and other issues. So I don't know. It's a two-star rated stock trading into 19% premium. Stock's gone up a pretty good amount going into earnings. So I think there's a lot of risk in this one. [00:07:19] Sarah Hansen: Okay. Next up on your list is Palantir. Now, this was a pick of yours over the summer and it's had a really great run since then, all the way up from undervalued now to kind of pretty overvalued. With a rating of two stars. Is there any upside left in that stock? [00:07:35] Dave Sequeira: We shall see. So yes, we recommended it on the June 29th episode of the morning filter. It's up about 60% since then. But now the stock is trading at a 20% premium to our fair value. Now, when I think of Palantir, I really think of this one as being, they're the poster child for actually being able to utilize, you know, big data and artificial intelligence. But right now it is a three-star rated stock, but it's really at that upper end of that three-star range. In fact, it was a two-star stock before the big market sell off at the end of last week. So essentially, I think that with that stock trading that high, we would need to see really something that would cause us to go back and change our forecasts, our longer-term forecasts on this company in order to raise our fair value. Otherwise, you know, if we're not making a fair value and really a pretty big bump up in the fair value change, I think now is probably a pretty good time to take some profits, you know, on that position with as much as it's run. And I would have a hard time seeing us really make that big a change, you know, to the upside, unless they come out with just guidance that we just hadn't been contemplating. I took a quick look at the model over the weekend. We're already forecasting just some huge growth over the next couple of years. Our five-year compound annual growth rate for revenue is 46%. So essentially, we're looking for eight and a half billion of revenue in 2026, going all the way up to 30 billion in 2030. And for it to grow, I mean, even at a 20% rate, you know, thereafter, you know, as far as earnings go, the five-year compound annual growth rate is 49%. So we're looking for $1.53 in 2026, which puts the stock at 127 times earnings, even using $2.08, that's our estimate for 2027 earnings per share, still trades at 94 times. So even in 2030, where we're expecting $4.67 in earnings, it's still trading at 42 times. So this is, you know, granted a high-growth stock, but it is a very expensive stock nonetheless. [00:09:32] Sarah Hansen: All right. Well, on the other side of the coin, there we have Clorox, which is trading at a really big discount. What are you watching for there in their results? [00:09:41] Dave Sequeira: Yeah, so Clorox is still at a 43% discount to our long-term intrinsic valuation, more than enough to put it into five-star territory. Essentially, all I really am looking for for this company is just signs of normalizations in their sales trends, looking for a slight rebound in operating margins so that we can really, you know, get that confidence that they're going to start going back up towards the long-term normalized trends. You know, when I take a look at our model, we're forecasting an operating margin for fiscal 2027 of 15.1%. So that's a pretty good expansion from what they posted last year, which is only 14.4%. But yet, we're still only projecting that, you know, to be well below the eight-year pre-pandemic average, which was 18.1%. Stock only trades at a 14 times forward earnings multiple. So to me, I think if we get, you know, any kind of indication that things are starting to normalize here, I think there's a lot of upside in this one. [00:10:37] Sarah Hansen: All right, great. And last up on our docket is Arm Holdings. This is a chip designer and it's lost roughly half its value since the summer. What will you want to hear about when they report this week? [00:10:48] Dave Sequeira: Yes, that stock peaked in June at 440 a share. It's down over 50%. Now it's a three-star rated stock, but same thing as what we talked before. It's three stars, but it's right at that top of that three-star stock range. In fact, I think it was also two stars, you know, not that long ago. So in this case, you know, the company makes or they utilize, you know, their software for CPUs, which are used in the AI ecosystem. So that part of their business, you know, should be performing exceptionally well. But when you think about the guidance that we got from Intel, I think there's going to be a lot of concern with Arm regarding their non-AI business. So if you think about like where else, you know, their software is used, you know, in semiconductors, whether it's, you know, smartphones, tablets, PCs, electronics, you know, all of those are under so much pressure right now because the cost of the memory on those products has really pushed those prices up on the products. And so we're just seeing a fall off in demand. [00:11:46] Sarah Hansen: Okay. Another one to watch. Let's pivot over now to some new research. This is the beginning of our earnings recap marathon. Are you ready? Sure, let's do it. We've got a lot of names. Okay. First up, we've got a bunch of hyperscalers, including Alphabet and Amazon, which you mentioned up top. But why don't we start with Microsoft? What was Morningstar's take on that report? [00:12:09] Dave Sequeira: So overall, the earnings report was actually pretty good. And in fact, the stock initially started to trade up, but then it just got pulled down, you know, after Google's numbers ended up coming out. So overall, top line revenue was up 19%. Azure, their data center business up 45%. And even like Microsoft 365 was up a strong 18%. Now we made a couple of revisions to our model. We are now looking for a little bit faster, like short-term and medium-term growth. But we ended up offsetting that by now expecting even higher expenses and cash flow pressure for even longer. So really no big change in our fair value overall here. Looking forward, we're still looking for just continual acceleration in that Azure business, looking for 50% growth. That's up from 45%. Still no change. I mean, what we've talked about Azure for a while, it's still capacity constrained. They're still able to grow, you know, the revenue there as fast as they're able to bring, you know, new capacity online. Still see that for the foreseeable future. As far as CapEx goes, their 2027 CapEx, we're looking for 170 to 175 billion. It's a big bump up from 2026, which was only 116 billion. And in fact, if you look at 2028, we're now forecasting 230 billion in CapEx spending. So again, that's really going to pressure their cash flow for a while until they can start monetizing all of that AI CapEx spending. Now, taking a look at the stock, this stock has now pretty much round tripped the entire SaaSpocalypse. So this stock was about 550 a share about a year ago, bottomed out at 350. And we kept mentioning how, you know, we thought this one was significantly undervalued and was rated five stars. It's now back up to 530 a share, no change to our $600 fair value. So it's still a three star rated stock, but it is at a 13% discount. So if it were to fall much from here, that would put it back into four star territory. I don't know. I just overall, when I think of Microsoft, I like their business setup. They're not a one trick pony. They have a lot of different ways that we think that they're going to monetize and utilize artificial intelligence over time. I still consider Microsoft to be a core holding type of stock for most accounts. [00:14:25] Sarah Hansen: All right, great. Moving on to Alphabet. This is one of the ones that sold off really, really sharply after earnings. I think more than 12% on the day on Thursday. Yeah. Tell us what the market was responding to there and what's Morningstar's take? [00:14:41] Dave Sequeira: Well, I mean, it's a big surprise that they missed on both the top line and the bottom line. So just walking through the numbers here, I mean, the numbers in and of themselves were pretty good. Revenue was up 25%. Their operating margins expanded by 130 basis points to 31.8%. Google Cloud grew over 100% and now constitutes 24% of the revenue of the company. That's up from only 15% a year ago. But the problem came in on the search side of their business. That came in at only a 12% growth rate. That was expected to be a 17% growth rate. And I think that's what really caused the stock to tank because there's a lot of concern that AI is now eating away at their search business. You have, you know, AI overviews, their AI mode. I mean, those are growing as a percentage of their total search queries overall. And so people are concerned that by using those, they're not able to monetize, you know, that part of the business for advertising. Now, from our point of view, our analyst, he's really not necessarily that concerned about this in the short term. Yeah, he's noted, I mean, one thing that Google knows how to do is to be able to figure out how to monetize its products. It has a long history, you know, of doing that. So even if they're not necessarily generating as much revenue on AI usage now, we do think that they will be able to figure that out, you know, going forward. You know, just taking a look at some of the other parts of their business, I mean, that Google Cloud business is still expected to generate just crazy growth going forward, especially since now they're starting to sell those TPUs instead of just renting them out. So we made a couple of changes to our model and we actually went the other way. So while the market sold off as much as it did, our analysts raised our fair value to 450 a share up from 433. Overall, we think the market's underappreciating the rapid growth in Google Cloud. And we still think that among all of the AI companies that they're in still the better position type of spots, you know, they have good vertical integration. We think that provides better cost structure than a lot of others. And they have a lot of, you know, in-house things going on like their TPUs, their own AI models, you know, their co-designing hardware and software. So we think that helps them minimize costs and put them in a better cost position than their competitors. [00:16:57] Sarah Hansen: Great. Thank you. And now Amazon, which also got caught up in that sell-off. What did we learn there? [00:17:04] Dave Sequeira: Yeah. So Amazon's third quarter revenue, respectable, up 12 percent. Their operating margin reached, you know, 13.9 percent. And overall, our analysts thought guidance was roughly in line with his expectations. Now, AWS came in at 39 percent. That's up from 37 percent last quarter. Management expects that to grow slightly over 40 percent in 2027 and 2028. But in my opinion, that seems to be a slower growth rate than what we're seeing from other hyperscalers. So that might have been one of the issues, you know, on this stock. Now, taking a look at their CapEx spending, they're expected to spend 220 billion this year. For 2027, they characterized AI spending as meaningfully more compared to 2026. So that just is going to keep the free cash flow negative for even longer. So I think that's another problem with this stock. Overall, we did make a couple of revisions to our model, just really incorporating the fact that they're going to have to spend an increasing amount of capital on their business and continually reinvest in the business for artificial intelligence longer than what we had in there before. And that resulted in lowering our fair value to 280 a share from 300. [00:18:16] Sarah Hansen: Okay. Let's go one step beyond the hyperscalers now. We can take a look at Amphenol. This is one of those AI picks and shovels companies that we talked about last week as a good buy to kind of take advantage of this build out boom. But you did caution that it might be a good idea to wait until after earnings before, you know, changing a position in that stock. So where did we land? And does Amphenol still look attractive to you after earnings? [00:18:42] Dave Sequeira: Yeah. So, I mean, it was a very strong quarter. They beat both top line and bottom line by quite a, you know, revenue up 65% year over year. Now that's a total year over year increase organically. If you strip out some of their acquisitions, it was still up 37%. So, you know, big top line growth. And of course, with that fixed cost leverage, you get good operating margin expansion. So the op margin expanded 220 basis points to 29.7%. So that's a record high margin for them. And it looks like based on their guidance that they're still looking for, you know, even further strength going into the fourth quarter. As you noted, this has been our go to stock to try and play the commodity oriented tech hardware. You know, most of those other stocks we think had run up, you know, way too far, way too fast. In fact, most of them have been on a pretty downward trend ever since June. I think our first recommendation on this stock was on the May 11th morning filter. It's up 30% since then. We maintained our $100 fair value. So at the 21% discount, still more than enough to put it in four star territory. [00:19:47] Sarah Hansen: Great. So it sounds like, yes, it sounds like still a buy after earnings. All right. Let's pivot out of tech, take a breather. Why don't we talk about healthcare? What did we learn from GE Healthcare? I know this stock has been a pick of yours more than once. [00:20:02] Dave Sequeira: Yeah. So we recommended a couple of times first on October 6th, 2025. And again, on the March 30th, 2026 episodes of the morning filter. Now there was a big sell off in the stock in April and it dipped all the way down into five star territory, but it's been recovering ever since. And it looks like it's getting good traction. In fact, the stock was up 7% after earnings. Taking a quick look at the results here, revenue is up 6.2% year over year. Management raised their revenue guidance to 4%. That's the high end of their prior guidance range, which was three to 4%. Operating margin expanded 180 basis points to 16.6%. We expect even further expansion yet to come. Overall, we maintained our fair value at $88 a share. It's a 13% discount, just enough to put it in four star territory. And I think it's a pretty reasonable valuation. The stock trades just below 15 times our 2027 earnings estimate, which is $5.09 per share. [00:21:01] Sarah Hansen: Great. Let's stay in healthcare and let's talk about Biogen. [00:21:05] Dave Sequeira: So revenue is up 11% year over year. Management has enough confidence that we're able to narrow their earnings guidance to 15.95 to 16.75. That's tighter than what their prior range was, which was 15.85 to 16.85. And the stock using the midpoint there just trades, I think just a hair above 15 times earnings. Our 220 fair value is unchanged. It's currently a three star stock at a 15% premium. So, you know, typically, you know, at a 15% premium, maybe you want to start thinking about, you know, taking some profit there. I just note, we do have a couple of catalysts here. So we have a phase three rate out coming in December, several more in 2027. So if we got good news from those phase three readouts, you know, that could provide, you know, further upside from here. Having said that, we did recommend this stock on August 4th of 2025. It's up 92% since then. So the same point in time, I don't know, with that kind of return since then, and it is trading at a premium, you know, maybe now's a good time to at least take some of those profits, you know, off the table and maybe keep some of the position, you know, just to see what happens with those phase three, you know, readouts and whether there is some more upside. But if there isn't good upside coming from those, at least you'll have locked in, you know, a pretty good amount of that 92% return. [00:22:26] Sarah Hansen: Okay, fantastic. And last up in healthcare is Bristol Myers Squibb on a recent pick. So what did you learn there? How do you feel about the stock? [00:22:33] Dave Sequeira: This to me was actually kind of an odd quarter. So they had good revenue growth. That was up 7% and management raised their 2026, you know, revenue guidance to 50 billion from 49.5 billion. But unfortunately, we saw earnings decline and management lowered their earnings per share guidance to 645, you know, at the midpoint to factor in, I'm assuming like some additional costs from some acquisitions. Still, the stock's only trading at nine and a half times earnings. I think to some degree, I mean, the market's still in this wait and see mode. They're waiting for additional data to come out on some of the drugs, you know, in their pipeline. They want to have the confidence that as those drugs, you know, get approved, that they're going to be able to offset some upcoming patent cliffs on a couple of other drugs that's coming, you know, here in the near term. Overall, we do have a differentiated view on this one. I mean, this has been our go-to stock for the pharma industry for quite a while. We think their pipeline is underappreciated, you know, by the market. So I think if we did see, you know, any positive results coming out from, you know, some of the, you know, data for two different drugs that's coming, I think, in December in the first quarter of 2027, there could still be, you know, some further upside from here. But for now, our fair value is $70 a share. It's a four star rated stock, 11% discount. I think it's up, you know, 25% since we first started talking about this one in mid 2025. And at the same point in time, not only if you've gotten that premium or that, you know, increase in the stock, you know, principle, but you've also been able to clip, you know, over a 4% dividend yield for that same point in time. [00:24:08] Sarah Hansen: Okay, fantastic. Should we switch gears? Defense stocks? All right. So we have L3 Harris next up. This was a new pick of yours a couple of weeks ago. And when we talked about it, you mentioned that you thought they were pretty well positioned to kind of take advantage of changes in defense spending that might be coming over time. And you liked that they had a little bit in the, a little bit more in the way of margin expansion compared to some of those other bigger companies like Lockheed Martin. So is that still your view after earnings last week? Nope. [00:24:40] Dave Sequeira: You got it. We can just move on from now. [00:24:41] Sarah Hansen: Oh, okay. Sorry. [00:24:42] Dave Sequeira: No, all kidding aside. Yeah. So, I mean, results were very good. You know, they beat top line and bottom line. The stock is up 7%, you know, after the earnings number. You know, their revenue was also up 7%. The operating margin expanded like we expected. For those of you that maybe missed, you know, the episode that we talked about this company, you know, they focus on uncrewed aerial vehicles, sensors, avionics, space-based systems, missiles, solid rocket motors, all things that, you know, seem like they're going to be an increasing part of, you know, what the defense setup needs to be as we're seeing, you know, warfare start to evolve. And the thing that really works for the stock is because the company is a lot smaller than like a Lockheed or Northrop, you know, they have the ability that increases in, you know, those type of products is a larger percentage of their overall revenue. So I think they're going to get a lot of good upside revenue, a lot of good upside margin, you know, because of the change in how warfare is conducted and that their products really line up with that. [00:25:41] Sarah Hansen: All right. Great. I'm sorry to steal your thunder. Okay. Last one in our marathon is Intercontinental Exchange, new industry, another former pick. How does that one look after earnings? [00:25:52] Dave Sequeira: Yeah, this one's been a pick, you know, several times this year. It's been, I would call it a solid performer. You know, revenue is up 15% year over year, earnings per share up 18%. I'd say overall, no change to our investment thesis or to our model. Longer term, we think like the energy futures business benefits from long-term secular trends. You know, overall we're still with the data center build out looking for rising demand for electricity. I think that there's still a long runway for liquid natural gas. So we see, you know, a lot of good positive, you know, tailwinds behind us. And in my mind, I think this was another example of a stock that got caught up with, you know, the SaaS apocalypse. You know, everyone had thought that, you know, the AI was going to take a lot of these companies down. It's going to like disrupt or displace their business. We didn't think that that was going to happen. So this stock also now has recovered close to where it was a year ago. Following earnings, our fair value is unchanged at 183 per share. It's at an 8% discount. It's a low uncertainty stock. And because it's a low uncertainty, we have a very narrow range around our intrinsic value. So that 8% is enough to put it in four star territory. And trades at a pretty reasonable multiple at today's market at 21 times earnings. [00:27:06] Sarah Hansen: Great. Well, thank you so much, Dave. That was a big recap. Now it's time for our question of the week. As a reminder, if you have a question for The Morning Filter, you can email us at themorningfilter@morningstar.com. Now, this week's question is about core holdings, which have actually already come up today when we were talking about Microsoft earlier. But let's talk about what core holdings are, what qualities they share, and how investors should think about managing these types of positions. And I mentioned that we said it earlier, and I have a preview that is going to come up later. So it's a great thing to talk about. Why don't you walk us through the basics? [00:27:45] Dave Sequeira: Yeah. And it's been a while since we've talked about, or at least kind of my own personal view on investing. So when I think about investing overall, you want to have an idea of what your own personal risk tolerances are. And that's going to help guide you how much you want in fixed income, how much you want within the equity. And then within the equity portion of your portfolio, I think you want to have good diversification to start. So I think the best way to do that is some good broad ETFs, mutual funds. And of course, you can use Morningstar products in order to look for very good funds and ETFs. Once you have that basis of your portfolio, that's when I think you start moving into individual stock selection. And when you start with the individual stock selection, I think you want to start off with stocks that I call those core holdings as the basis of the individual stock part of your portfolio. And these are the kind of stocks that I think you want to own no matter what part of the economic cycle, no matter what part of the business cycle or even the market cycle we're in. These are the ones that you would have enough confidence in that if they're selling off, whether it's idiosyncratic and that individual stock itself is just selling off, or if the entire market is coming down, these are the ones that you're going to dollar cost average in to the downside. These are the companies that you're going to have the confidence in that they're going to be the survivors, no matter how severe of a recession we may have. But at the same point in time, they're also the companies that thrive during expansions. So I start off looking for what I consider high quality companies. Look for those that we rate with a wide economic moat. I also take a look for those companies that we rate with a low or medium uncertainty. Depending on the sector, I'll also look at high uncertainty rating stocks. So, for example, in the tech sector, very difficult to find a low or medium uncertainty. Just naturally, because of that sector, they're all going to be high uncertainty stocks. I also like core holdings to have a pretty decent dividend yield. So I like to get paid while you wait. I mean, if we go into a market where maybe it's a down market and you don't want to sell anything, or maybe a market where it just kind of goes nowhere for a long period of time, at least you can be capturing that dividend yield. So again, I think with a core position, just like any stock position, I think you start with a partial position. So the first thing you want to decide is how large of a position do I want to have in any one individual stock as a percentage of my overall portfolio. So when you buy that stock, maybe you start with a half, maybe two thirds, but you want to leave some dry powder. So that way, if it sells off, you've got that capital to be able to put it to work, the dollar cost average and to the downside. These are also stocks that I think are typically going to be less volatile. They're not necessarily trading stocks and they're not stocks to rent. So when they're four and five star, you want the dollar cost average into the downside. But the same point in time, when they do move into two star or one star territory, even though maybe you don't want to sell out your entire position, you at least have to take some profits from the upside. So I know we also got some questions about people looking for new core holdings. Unfortunately, I just don't think I have anything new at this point. I mean, the market is still pretty heavily valued, taking a look at those stocks that I would consider to be core holdings. I mean, there's nothing new that's fallen into like four star territory that I think you should be really looking at to get into to start off with. I think, you know, companies like we already talked about, Microsoft and Alphabet, you know, are both still core holding type of stocks. So, you know, maybe if you're not involved in those, maybe you go ahead and start with that partial position today after they sold off a little bit. But again, you want to keep that dry powder because if the whole market is selling off, you know, you want to be able to buy more as they go down. [00:31:37] Sarah Hansen: Great. Thank you, Dave. That's a great reminder. And let's move on to picks. Everybody's favorite part. October is over and I cannot believe we are in the first week of November. You've brought us three stocks to sell and three stocks to buy for the month. Let's start with your sell recommendations. You have Valero and refiners in general, it sounds like. So why do you recommend investors take a step back there? [00:32:01] Dave Sequeira: Yeah, all the refiners are trading well into overvalued territory. So I picked Valero as really just an example here. It's a two star rated stock, trades at a 68% premium. But even Phillips 66, also a two star rated stock at a 50% premium. HF Sinclair is a two star rated stock at a 32% premium. Marathon Petroleum, a one star rated stock at 88% premium. So they've all just run way too far in our mind when we think about the long term intrinsic valuation of these companies. So what's happened here in the short term because of a lot of global conflicts, just because of how refiners in certain areas of the world have been shut down or might be under maintenance or local governments really trying to keep refining capacity low within their own countries, global refining capacity has been pretty constrained. And so I think what's happened is that because of that, the normal flows have also been disrupted as far as how those refined products flow from one country to another, especially everything else going on with Russia and Ukraine and in the Middle East right now. So what we've seen is that US refiners in general have been actually very well positioned to capitalize on these global market disruptions, which has kept supply for the refined products relatively low. And of course, then has bumped up the margins to new record levels. Now, looking specifically at the refiners, our team has noted that those on the West Coast have really been the most insulated from crude supply disruptions. And at the same time have been the ones that have been able to benefit the most from the high margins and the exceptionally wide crack spreads. So while these companies are making just exceptionally high margins for now, refining in and of itself is a very cyclical business, has very high fixed cost leverage. Of course, that fixed cost leverage worked great to the upside. But then again, it'll also work against you to the downside. So once the cycle starts to normalize at that point, then I think these stocks probably have a lot of downside. [00:34:12] Sarah Hansen: Okay, so some risk there. Second on our list is Robinhood. I don't know what the opposite of pounding the table is, but that's what you are doing on Robinhood. The stock has been on your sell list a bunch of times. Yeah. Why do you still feel so strongly? [00:34:26] Dave Sequeira: Yeah, so we recommended to sell it on the October 5th episode of The Morning Filter. It's down over 25% since then. And then we also reiterated that sell on the October 12th episode of The Morning Filter when we were specifically identifying stocks to do like tax loss harvesting on. So even with this one having fallen as much as it has, it's still a 44% premium to our fair value, still a two-star rated stock. I mean, one of the more overvalued stocks across our coverage. And I still think that to get even just to our fair value, we're still looking at some very heavy growth rates. So if you don't see these growth rates come to fruition, then I think there's even further downside from our fair value. So in our model, we look for revenue to double from $5 billion in 2026 to over $11 billion in 2030. We're looking for the operating margin to expand from 46.7% to 56.2% in 2030. Stock trades right now at 40 times our $2.13 per share earnings estimate. And we're looking for earnings to go up to $5.32 in 2030. So again, if there's any kind of hiccup in those type of expectations, then our fair value is at risk, much less the stock trading that much above our fair value as it is. So with revenue coming in lighter than expected on a growth story, that really accelerates pressure to the downside. And I think that the company overall is probably in a pretty tough market position because, of course, a company like this makes the most money, makes the most margin on people who are trading short-term trades or even day trading. And in a market where it's necessarily trading to the downside, and who knows where we trade from here. But if the market has further to fall, typically you see a lot less of that type of trading activity. [00:36:21] Sarah Hansen: So a lot of headwinds there for Robinhood. Number three, we have Johnson & Johnson. Now, this is one of those core holding stocks that we just talked about. Tell us why it's on your sell list. [00:36:31] Dave Sequeira: Exactly. And I think this is one that we talked about as being a core holding. And our first recommendation on J&J was all the way back in March 18th of 2024. And so while I still think you might want to hold some of this position, I think you also need to think about taking some of the profit off the table, freeing up some of that dry powder. So that way, if the stock does fall, you have the ability to dollar cost average in to the downside, or maybe even just reinvest in some other stocks that are trading at a better margin of safety from their long-term intrinsic valuation. This is one of these stocks I think has been able to benefit from the anything but AI trade. And I think we're looking at pretty conservative forecasts. Our five-year compound annual growth rate from revenue is 6.5%. Yeah, we're looking for operating margin expansion to 31.3% from 26.4%. Yeah, that might be a little on the high side. I mean, it's averaged 26%, you know, over the past five years. Yeah, we're looking five-year compound annual growth rate for earnings of 8.1%. But it's just that as much as the stock has traded up, it's now trading at 24 times 2026 earnings estimates. Even on a forward multiple using our earnings estimate for 2027, it's still a 22 times multiple, which in my mind is probably just too high for 8% earnings growth. [00:37:52] Sarah Hansen: Okay, thank you, Dave. Let's move on to your buys. First up, we have Applied Materials, a semiconductor stock. Give us some of the key metrics there. [00:38:01] Dave Sequeira: Sure, so Applied is a four-star rated stock. Currently trades at a 25% discount from our valuation. Only a half a percent dividend yield, so maybe not one if you're a dividend yield investor. Of course, you know, high uncertainty rating, but we are signed at a wide economic moat. That wide moat being based on cost advantages and intangible assets. [00:38:20] Sarah Hansen: Okay, now Applied Materials was a sell recommendation just a few months ago. So what has changed to put it on your buy list? [00:38:27] Dave Sequeira: Yeah, it was a sell recommendation on the June 29th, 2026 episode of the Morning Filter. And we just noted at that point in time, I mean, as much as we have very positive view on the company in and of itself, the stock just ran way too far, way too fast, you know, to the upside. And it's now dropped 44% since then. So now we take the view. We think it's fallen too much to the downside. So for those of you that aren't familiar with the company, they are the largest semi-wafer fabrication equipment manufacturer in the world. As far as we can tell, industry demand is still very healthy across the board. When I take a look at our model, I think it seems, you know, pretty reasonable to me. We're projecting revenue in 2027 to grow 30%. Considering it's already November, like you're talking about, I think those orders for the most part for next year are already locked in. So shouldn't be that much risk to next year's revenue. And then from there, we expect revenue growth to start slowing in 2028 through 2030, ticking down to 20%, 14%, and 10%, respectively. So it's not like we're looking for some big hockey stick projection to the upside. And of course, the earnings kind of takes that similar trajectory. So we're looking for 38% growth in earnings in 2027, then slowing to 28%, 18%, and 14%. So I like that we are modeling that while you have good visibility here into 2027, that we are bringing those down in a couple of years thereafter. Stock currently trades at 22 times our 2027 earnings estimate of 1765. So I think it all looks, you know, pretty constructive. [00:40:05] Sarah Hansen: Great. Next up, we have Standard Aero, which is an aerospace play. What are the highlights there? [00:40:10] Dave Sequeira: So Standard Aero is a five-star rated stock at a 45% discount from fair value. Now this company doesn't pay a dividend. It's rated with a medium uncertainty. We assign a narrow economic moat based on its intangible assets. [00:40:25] Sarah Hansen: And now this stock is down quite a bit this year. We had a really big plunge that started in August. What happened there? And, you know, is our take different from the markets here? [00:40:35] Dave Sequeira: Well, it's definitely different from the market based on that valuation discount. And this is actually the first time I've recommended this stock. In fact, I think we just picked up coverage of this company last fall, which is, you know, probably why I haven't talked about this one before. So the company itself is one of the largest independent providers of maintenance, repair, and overall services for aircraft engines. It also fits into that small cap growth stock category. And I think this could be another one that maybe it's, you know, not necessarily really looked at by the marketplace a lot. But as people are looking for small cap plays, specifically growth plays and being in anything but AI play, that could pretend well, you know, for this stock going forward. So I think the biggest concerns with this one and maybe, you know, why the stock, as you mentioned, had sold off is, you know, one, there are a lot of new aircrafts that are going to be coming online. So I think people are concerned that as new aircrafts, you know, are, you know, entering into service that you might need, you know, fewer or less amount of jet engine maintenance. And I think the other concern is that with oil prices being as high as they are and that flowing through to, you know, ticket prices, that high fuel prices could lower the demand for, you know, air travel overall. Now, when you think about jet engines, they need regular maintenance, every specified number of hours of flight time, whether or not, you know, that flight is full or not full. And even if it's a new engine, it's still going to have to have, you know, that type of maintenance, you know, on those engines, you know, those number of hours. So overall, I mean, I've talked to like our travel analysts. We haven't seen a decrease in travel demand and they don't expect to see one. People are still paying up for experiences, you know, over buying stuff. That trend hasn't slowed whatsoever. And even if there were a decrease in travel demand, I still think that the airlines, you know, while they would adjust over time by having, you know, a fewer number of flights, that isn't anything that they can change, you know, very quickly. So I still don't think that that would end up really impacting the stock here, you know, in the near term. Took a quick look at our model, you know, our five-year compound annual growth rate for revenue is 6.4%, which is actually a lot lower. That's about half the past three-year average, which was 13.5%. So that to me seems like that already takes into consideration, you know, a number of those different issues. We're looking for continued operating margin expansion as they get more and more experienced with maintaining and working on, you know, the new engines that are coming online. So we're looking for the op margin to expand to 13.6% from 10.2%. Overall, our five-year compound annual growth rate for earnings when you put those together is now 18%. Yet the stock's only trading at 15 times our 2027 earnings estimate. [00:43:24] Sarah Hansen: Great. And number three, moving on to Crown Castle, which is a REIT that owns and leases wireless cell towers. Walk us through the numbers there. [00:43:33] Dave Sequeira: So Crown Castle is a four-star rated stock, trades at a 22% discount, nice healthy dividend yield at 4.8%. We rate the company with a medium uncertainty. We assign it a narrow economic moat based on efficient scale and switching costs. [00:43:48] Sarah Hansen: Great. And so let's talk about why this is a buy. And I have a suspicion that our recent chat about SpaceX and US telecoms might be coming into play here. [00:43:57] Dave Sequeira: Yeah. We also had some viewers send in some questions about, yeah, how to be able to play, you know, the SpaceX potentially, you know, getting more and more involved, you know, into the wireless business. And so when I think about, like, if SpaceX really does want to get into the wireless business, they're buying Spectrum. Well, if they're going to use that Spectrum, of course, now they need to have, you know, the actual, you know, equipment in place to be able to use that Spectrum. So, of course, I think that if they were to do that, they would add a lot of further upside to Crown Castle that we don't have currently modeled, you know, into our model. Now, I like the stock because it's still undervalued even without getting any new business, you know, from SpaceX. Company owns, you know, 40,000 wireless towers in the U.S. They make their money by leasing space on those towers to the wireless service providers who then, you know, install equipment to support their wireless networks. So I think this is one that if you really believe, you know, Elon is going to get into providing, you know, wireless, I think he would have to go to like a Crown Castle. So I think that provides a lot of upside. Even without that upside, it's still just an attractively valued stock. When we look at the valuation here, you know, because it's a REIT and because of the type of business it's in, our analyst team uses a valuation multiple, it's enterprise value to EBITDA. You know, historically, the long-term median for this company has been 23 times. It's currently at 21 times right now. So it looks attractive from a couple of different points of view. [00:45:30] Sarah Hansen: Great, fantastic. And that is the end of our show. Thank you so much, Dave. Another marathon. So viewers and listeners who'd like more information about any of the stocks that Dave mentioned today can visit Morningstar.com for more details. And we hope you'll join us next Monday for the Morning Filter podcast. That's at 9:00 a.m. Eastern, 8:00 a.m. Central. And in the meantime, please like this episode and subscribe. Hope you have a great week. [00:46:07] Speaker ?: Have a great week. Bye.