5 of the Best Core Stocks to Own I June 15, 2026

[00:00:00] Speaker ?: Редактор субтитров А.Семкин Корректор А.Кулакова Корректор А.Кулакова Корректор А.Кулакова [00:02:00] Susan Jubinski: Hello and welcome to the Morning Filter podcast. I'm Susan Jubinski with Morningstar. Every Monday before market open, I sit down with Morningstar Chief U.S. Market Strategist, Dave Sikara, to talk about what investors should have on their radars for the week, some new Morningstar research, and a few stock ideas. But as you can see, we're doing something different today. Dave and I are taping a special episode dedicated to core stocks, which is a topic we've talked about before and that you've told us you wanted to hear more about. We'll cover what qualities core stocks share, when to buy them, and how to manage your core stock positions. And we'll wrap up with, of course, some core stocks to buy when the price is right. Dave and I are taping this video on June 3rd. All right, great to see you in person, Dave. It's good to be back in the studio. I enjoy this. So let's start at the beginning. What qualities do core stocks have in common? [00:02:55] Dave Sikara: Well, you have to think about core stocks as really the basis of your portfolio, really that bottom layer that everything else is going to be built upon. These are the ones you're going to want to own through pretty much any kind of market cycle. You're going to want to own these no matter how market sentiment may be shifting. And these are the ones you really want to own through any kind of economic cycle, whether we're in an expansion or a recession. As far as the attributes, the type of of things I'm typically looking for for a core stock are going to be those that have a wide economic moat, those that we think have those long-term, durable, competitive advantages to be able to generate those excess returns over the next 20 years or more, maybe those with a low or medium uncertainty. So you're not going to have, hopefully, nearly as much volatility in those kind of names as you might see elsewhere. And of course, then one of the big things, too, is also looking at how management has run the company, really looking at their capital allocation rating. Ideally, certainly looking for one that has an exemplary rating. Now, would you recommend, considering we're talking [00:03:54] Susan Jubinski: about core stocks, which again are those foundations for a portfolio, how important is evaluation with core stocks? You know, normally we talk on The Morning Filter about buying stocks at a discount to our fair value. You know, can you fudge a little bit with core stocks and buy them, you know, maybe when they're a little overvalued? What's your take? You know, personally, I'd still probably steer clear if [00:04:14] Dave Sikara: they're overvalued. And again, in that case, you know, if it's a two star or a one star, that just tells you that you wouldn't expect to get those risk adjusted type of returns that you could get elsewhere. So if they're a two star, one star, I'd probably steer clear. Now, if they're a three star rated stock, again, I'd much prefer if they had a margin of safety. But again, I don't think it would be wrong to buy a three star rated stock. I would just say I would probably start with a partial position, make sure you leave yourself some dry powder. So that way, if the stock sells off or the market sells off and pulls it down, you've got the ability to be able to dollar cost average in and be able to buy some more, you know, when you're able to get it cheaper. Now, we talked on a previous [00:04:53] Susan Jubinski: episode of The Morning Filter, and it really seemed to have resonated with with with our audience this idea of as an investor, you're not really buying and holding indefinitely. You know, you you termed it more of it's a buy and manage type of approach to stock investing. So talk specifically, Dave, about how a buy and manage strategy works when we're talking about core stocks specifically. [00:05:17] Dave Sikara: So everything's always got a price you want to own it, and everything's got a price that you don't want to own it. And that's more how I think about this buy and manage strategy. Now, that's some advice I got earlier in my career from Jimmy, he was the ex-Solomon Brothers trader, you know, that I worked for for a number of years. And it was really great training, thinking about how to be able to manage positions. So of course, you have a position on and when you think about a position, you own it every day, every day market opens up, and you can decide either I should be buying more of this, I should be holding it, or I should be selling it. So in this case, with that buy and manage perspective, I think you need to really realize, okay, well, what's the valuation of the stock? Where is it trading? Is this something I still want to own today? And if not, if there's been a change in, you know, maybe the the investment thesis for the company, your outlook is changing, you know, the valuation has gotten too high, you know, no one ever went broke, you know, taking a profit, so it's always good to peel some off. Or conversely, even if that stock is selling off, again, if there's a change in your investment thesis, and you're no longer as confident about your outlook for the company, maybe you think that revenue isn't going to keep up with what you thought it was going to be before, maybe margins are contracting, and there's a change or a paradigm shift within the industry itself that you don't think that that's just a short term blip, and that maybe that's something that really is impairing the value of the company, you know, then go ahead and certainly take some, you know, off of the table. But again, I think you need to approach it with kind of that viewpoint, you know, every day, you can either buy more of this or sell more of this. And I think you want to have that base position. And again, for these type of stocks, more often than not, if they're selling off, and they get into four star and five star territory, you definitely want to have that dry powder to be able to add more in. And then that way, when it moves back up, you can take some of the profit off the table, or if you're at your full core position, you can hold it there. And conversely, you know, sometimes the market just gets overly exuberant in the specific sector or a certain name. And at that point in time, if it's moved up, go ahead, take some of that profit off the table, you can put that money to work, you know, elsewhere. So again, I think it's really managing that position, as opposed to just, you know, putting away and forgetting about it. [00:07:26] Susan Jubinski: All right, well, let's talk a little bit about picks, some core stock picks. Now, again, these aren't necessarily all buys today. But these are core stocks that are, you know, great companies to own at the right price. So they're definitely all at the very least watchlist companies. And you did something cool this time, not that you're not cool all the time, Dave. But this time, you went and you surveyed Morningstar's sector directors, and you asked them basically, you know, what is the best core stock in your sector. And we're going to talk about five of the responses that you received today. So the first one is going to be our sector director from the communication services sector, picked Alphabet. So walk us through the case for why Alphabet is a great core stock to own. [00:08:16] Dave Sikara: Yeah, and I mean, this is a stock, I mean, you and I have talked about ad nauseum over multiple years at this point in time. Our fair value on the stock today is $433 a share. It's a company we rate with a wide economic moat. And I'd say not just only a wide economic moat, but it's one of the handful of stocks. I think maybe there's only three that we use four of those five moat sources to identify that wide moat. So I think the only one that we don't use as efficient scale. And to be honest, between you and I, I think I could probably argue that it probably has that vote source as well. But again, it's just a company that just dominates the areas that it competes in today. And they of course, have just a huge research and development budget. And they're in just pretty much every part of forward looking technology today, whether it's Gemini, their AI platform, Google Cloud, where they're hosting AI generation or computing for other people. So again, no matter where technology is going, I think they're going to be there at the forefront of that technology for the foreseeable [00:09:20] Susan Jubinski: future. And again, a really high capital allocation exemplary rating on this company too, reflecting [00:09:25] Dave Sikara: that, right? Exactly. So it is an exemplary rating. And I think part of the exemplary rating is really just because when you look at the investments that they've been making in the past, just how well those have worked out, whether it's Gemini or whether it's the Google Cloud. All right. All right. So your [00:09:40] Susan Jubinski: second core stock is from the consumer cyclical sector. Sector director here says Lowe's is the best core stock in the sector. So review Morningstar's thesis on Lowe's. We've talked about it maybe on occasion on the show, but probably not very deeply. And talk about what makes it really a core stock to hold. [00:09:59] Dave Sikara: Sure. So taking a look at Lowe's, I mean, our fair value on that stock right now is 258 per share, you know, medium uncertainty rating, wide economic moat, that moat being based on cost advantages and intangible assets. Now, a lot of people might look at Home Depot. I'm not going to argue against Home Depot. I just think Lowe's is actually in a little bit better position right now. You know, one of the reasons that the analysts talked about is they're actually moving more into that pro sector. That's an area that Home Depot has actually done very well in. So we're actually looking for some earnings acceleration as they build out, you know, that part of their business. But, you know, even away from the earnings acceleration in that part of the business, you know, she just talked about the amount of pent up demand that she sees, you know, just because housing turnover has been, you know, relatively low, you know, an aging housing stock. These are just all good long-term tailwinds. And again, this is another one that has that exemplary capital allocation rating, you know, strong returns on invested capital, very strong balance sheet, which of course, for a retail like this, you really want to see that strong balance sheet. And other than that, they just have had, you know, very good proven reinvestment strategy, you know, being able to put money to work in the stores just to be able to evolve as consumer, you know, purchasing habits have changed. [00:11:11] Susan Jubinski: Okay. Another core stock with some exemplary, another exemplary capital allocation rating. This is from the consumer defensive sector and it's Procter and Gamble. Talked a little bit about this one on the podcast before, and this one seems very much like kind of a steady Eddie stock. Is that kind of fair to say about it? [00:11:29] Dave Sikara: It is and it isn't. So I would say this is actually a really good example of kind of that buy and management investment philosophy. So if you look at the stock, I think, you know, back in 2015, 2016, it was probably pretty fairly valued. And then for whatever reason, the market lost confidence, it had negative sentiment and that stock fell in 2018, you know, and it was a four or it might have even touched, you know, five-star territory at that point in time. And, you know, we held our fair value through that. And then the stock, you know, moved up quite substantially the couple of years thereafter. And in fact, that actually moved up so high, it went into, you know, two-star territory for quite a while and it stayed overvalued for quite a number of years. So again, this was a great one where you had that position, you could have added to it. And then when it moved up into that overvalued territory, you know, peel some of that off. I mean, in fact, if you look at that chart, you know, it has sold off the past couple of months. It looks much more fairly valued today. So if you're not involved now, it might not be the worst time of the world, you know, to be able to start a position there. But again, I think this is a good one where that stock had kind of gone nowhere for several years. You know, I mean, you're at least clipping, you know, a dividend coupon there. But again, it's one of those ones where that buy and manage strategy would have worked out, you know, pretty well over time. Now getting away from, you know, the stock in and of itself, you know, we do rate the company with a wide economic moat, you know, a couple of different factors behind that a low uncertainty rating. Overall, when you just think about the company, like I said, kind of a steady Eddie, you know, household consumables, you know, the types of things that you just need, you know, day in, day out. But the other part of the company that I think that we really find attractive is just the strength of their brands. And when you think about, you know, what they sell, you know, as a consumer, when you go into, you know, the supermarket, grocery store, or whatever, you know, and there are certain items that you're looking for, you expect retailers to have those specific brands you're looking for. And in this case, I think that gives the company a lot of leverage, you know, against their own, you know, clients, you know, to be able to make sure that they can, you know, extract as much, you know, economic value as they can out of that brand strength. Now, what was the fair value on this one? You might have said it. Oh, I'm sorry, it was $148 to share. Okay. Okay, great. All right. [00:13:37] Susan Jubinski: So the next core stock to own is from the energy sector. And we've talked about this one on occasion on the morning filter, it's Exxon Mobil. So what makes Exxon really stand out from, you know, its peers as like the core stock to own in the energy sector? Yeah, so a core stock in the energy [00:13:53] Dave Sikara: sector, you know, is going to have a little bit different attributes than what I'd look at for some of the other sectors. So in this case, with Exxon, our fair value is currently $156 a share. Now, unlike the other ones, this one only has a narrow economic moat. And a lot of that is just due to the factors of being in the energy sector with it being such a commodity oriented item that, you know, while they do have cost advantages, they're still going to be subject to, you know, the swings that you're going to see, you know, in the underlying commodity price. And then we also have a high uncertainty on this one as well. But again, in the sector, it's very difficult to find anything you'd have like with a low or medium because of the cyclicality and the commodity nature of the business overall. But in this case, you know, the company just has, you know, some geographical positioning and some of the best oil reserves, you know, globally. So that's really what's driving, you know, that cost advantage. But it's not just that. I mean, they also have their upstream business, their downstream business, you know, their chemical business, their refining business. So they're across the entire petroleum chain. And we think that also benefits the company in a number of different ways as well. And lastly, also another company that we rate with an exemplary capital allocation rating. And to some degree, I think part of the reason that that one is exemplary is, you know, if you look at what a lot of the oil companies have been doing in the last couple of years, a lot of them have been getting into areas that they just don't have poor competencies. You know, they were getting into renewable energy, green energy, and a lot of those efforts just have not panned out a lot of wasted capital in those areas. Because again, it just wasn't a poor competency. What we've seen with Exxon, with management, they're really sticking to their guns, sticking with what they know. And that's really worked out in order to help drive excess returns for them over time. [00:15:33] Susan Jubinski: All right. So we have one more core stock we're going to talk about today. This one's from the financial services sector. And it's one we have not talked about very much because it seems like it's always overvalued when we would have an opportunity to talk about it. And it's JP Morgan Chase. So why is this the core stock to own in the financial services sector? [00:15:52] Dave Sikara: Yeah. So our current valuation on JP Morgan is 311 per share. Again, a company with a wide economic moat that's going to be based on its cost advantages and its switching costs, medium uncertainty rating. And there's just really a whole host of reasons why JP Morgan is so strong, so strong compared to even their other large competitors in the marketplace. But it's not necessarily just the scale that they have compared to their competitors. But when you look at the individual business lines that JP Morgan's involved in, for the most part, they're number one or number two market share in each of those individual underlying businesses. And even where they're not the number one or number two market share, our analyst team still thinks that those businesses that they have, they're still really strong competitors. So again, it's not just the scale, but it's the position within all of those different types of banking businesses. Again, another one that we rate with an exemplary capital allocation rating. When I kind of go through the checklist here, as far as strong balance sheet, just phenomenal track record of the investments they've been making, and just thinking about how they balance shareholder returns, whether that's dividends, buybacks, reinvesting in organic growth, making good, solid acquisitions at the right prices. It just seems like they always do everything right. So definitely should be on that watch list. Exactly. All right. Well, Dave, good to see you [00:17:11] Susan Jubinski: in person today. Thanks for your time. Of course. Thank you, Susan. Viewers and listeners who'd like more information about any of the stocks Dave talked about today, you can visit Morningstar.com for more details. We hope you'll join us next Monday for the Morning Filter podcast at 9:00 AM Eastern, 8:00 AM Central. In the meantime, please like this episode and subscribe. Have a great week. [00:17:36] Speaker ?: Thank you. Редактор субтитров А.Семкин Корректор А.Егорова