4 Stocks to Buy With Winning Brands

Key Takeaways

• Updates on the market’s response to the ongoing war and what oil markets are telling us.
• What to watch in the US bond market today and what may be next for private credit.
• Why to monitor international bonds.
• Micron MU reported blowout results. Nvidia NVDA issued a stunning outlook for its Blackwell and Rubin AI products. Why isn’t the market impressed?
• Stock picks: top stocks with powerful brands.

In this episode of The Morning Filter podcast, co-hosts Dave Sekera and Susan Dziubinski discuss the market’s latest response to the ongoing war in Iran and explain what oil futures are telling investors. They unpack what’s going on in fixed income globally and whether the worst is yet to come in the private credit market. Tune in to find out just how big Morningstar’s fair value increase is on Micron after earnings and what drove an upgrade in Nvidia’s fair value, too.

Subscribe to The Morning Filter on Apple Podcasts, or wherever you get your podcasts.

Speaking of fair value changes, the co-hosts answer a viewer question about why Oracle’s ORCL fair value has moved around so much lately. They wrap up with some attractive stocks to buy of companies that are brand powerhouses.

More From Dave Sekera

Dave’s Complete Archive

Latest Stock Market Outlook

Transcript

Susan Dziubinski: Hello, and welcome to The Morning Filter podcast. I’m Susan Dziubinski with Morningstar. Every Monday before market open, I sit down with Morningstar Chief US Market Strategist Dave Sekera to talk about what investors should have on their radars for the week, some new Morningstar research, and a few stock ideas. Now, a programming note for viewers, we dropped a bonus episode of The Morning Filter last week. Dave sat down with Morningstar’s cybersecurity stock analyst to talk about how to think about the industry today, what AI means for its future, and which cybersecurity stocks look most attractive. So, be sure to catch it wherever you get your podcasts.

All right. Well, good morning, Dave. Overnight, President Trump posted on Truth Social that the US and Iran have had productive talks, and as a result, the US would postpone plans to strike Iranian power plants and energy infrastructure, and that’s led to a swing in the futures markets overnight. So, start with that.

David Sekera: Good morning, Susan. Honestly, markets are just all over the place this morning. I don’t think they completely know exactly what to take from his most recent comments. When I woke up this morning, before I even came downstairs, looked like S&P 500 futures were actually down about eight-tenths of a percent. When the news hit the screens, S&P 500 futures spiked. They were up over 2.25%, almost 2.5%, I think. Now they’ve given back pretty good amount of that. S&P 500 futures right now up 1.25%. We’ll see where they are when the market actually opens. Taking a look at some of the other markets here, 10-year Treasury. Initially, the yield on that came down, bond prices went up. It went down to 4.31%. It’s at 4.38% as of right now, so only a couple of basis points better following the news.

And then looking at the commodity markets, crude oil, taking a look at West Texas Intermediate, that was down almost 8% to 10%. At this point, it’s down 5.8%, brand oil coming down as well. And gold, we haven’t talked about gold a lot. I mean, I hope you took my advice last week and maybe took some profit in both oil and gold last week. Gold down $200 an ounce, down over 4%, but then again, that was down a lot more even before the news. So I think there’s going to be a huge amount of volatility, not only in the market today, but even premarket, I expect these things are going to continue to keep moving all over the place. But again, more than what the markets are doing right now, I think this really reiterates why, as an investor, you need to have that long-term mindset when you’re thinking about investing.

I completely agree. I think you need to reallocate, make changes as valuations dictate. But for most investors, I don’t think you should be trying to time the market, getting all in or all out at any one point in time. If you dumped a whole bunch of stocks last Friday before the close, trying to take too much risk out of your portfolio, you’d now be missing this rebound that we’re seeing this morning. But then again, at the same point in time, when you have some of these sectors like the energy sector, which has been moving up, if you haven’t captured some of these gains, now you’d be missing out on some of these gains. So again, when you have a hedge on like being involved in the oil industry, and it’s moving up, as it moves up, you need to take some profit off the table.

In this case, I think it really just reiterate, you need to have that long-term mindset, be very cognizant of valuations for individual parts of the market, individual stocks, and then be able to dollar-cost average to the way down. But at the same point in time, when things are moving up, you need to lock in some of that profit as well.

The War and The Market

**Dziubinski: **Dave, talk a little bit more broadly about how the market has been responding since the war began.

**Sekera: **As you would expect, the market had done generally pretty poorly. Oil prices rose over the past couple of weeks. That, of course, will end up driving inflation higher. To some degree, for some length of time, we’ll see how long oil prices stay elevated, but it also drove interest rates higher as people were pricing in that higher inflation. And of course, the effect is that it will lower consumer spending to some degree as more people are paying more for the pump and then having that inflation come through as well. So, to some degree, it will also reduce economic growth. Overall, it also makes the market a lot more uncertain. And I think a lot of investors are going to want to have a greater margin of safety before they put money into the market. So, I think that all has really kind of been coming to fruition over the past month.

Taking a look at individual parts of the market here. Over the past month, well, prior to this morning anyway, through last Friday, the Morningstar US Market Index, that’s our broadest measure of the stock market, was down about 5.5%. Year to date, it’s down 4.6%. The worst-performing sectors are those that are going to be most economically sensitive. For example, the consumer cyclical sector was down 10.5% through last Friday. Financials down 10.4%. Technology as a sector down 8.25%. And then as you would expect, the stocks that have been the greatest detractors to the market are also some of the larger mega-caps, specifically in the tech sector. Microsoft MSFT was down about 21% year to date, Apple AAPL down 9%, Nvidia NVDA down 7%, Amazon AMZN down 11%. And then to the upside, the best-performing sectors, energy was up 33%, industrials up almost 6%, consumer defensive up 5.6%.

And then running through the list here, stocks have been the strongest contributors to the markets thus far this year. In energy, you have both Exxon XOM and Chevron CVX. Those stocks up about 34%. Again, in tech, it’s all been about those commodity-oriented hardware. The things that you need to make the data centers that have gone up the most. Micron MU up 48%, Applied Materials AMAT up 39%. But then you also had a huge rush to those stocks that we’ve identified in the past as being a core holdings for your portfolio. Johnson & Johnson JNJ up 14%, Caterpillar CAT up 19%, Verizon VZ. It’s been a while since we’ve talked about Verizon, but again, that one is up 25%. And then just to wrap things up here, I’m sorry, I know this has been a long answer, but by category through last Friday, growth stocks were down about 6%, whereas value stocks were up eight-tenths of a percent.

And then by capitalization, large-cap stocks down the worst down a little over 6%. Mid-cap pretty close to breakeven, only down three-tenths of a percent. And then small caps having given up some of those gains from the end of last year, those were down 2.2%.

**Dziubinski: **Now let’s get back to the topic of oil, Dave. You mentioned oil at the top of the show. What’s the oil futures market telling us now? And then are there any updates to Morningstar’s forecast?

**Sekera: **To be perfectly honest, with the way things are moving and looking at the futures contracts, I really don’t have a specific takeaway because it’s just moving too fast really to be able to tell you whether or not the market’s trying to price in a probability of the conflict lasting longer or now shorter at this point in time. But again, I think you need to take a step back and think about what does all of this mean from a long-term perspective? So at this point, Josh [Aguilar] put out a note, he’s our sector director for energy. Still no change to our long-term or what we call our midcycle forecast. So, looking for $60 for West Texas, $65 for Brent. He’s noted that there could potentially be some destruction of infrastructure in Iran. But again, at this point, no change to the longer-term assumptions that drive those long-term forecasts when we think about the longer-term supply/demand characteristics.

Crude Bottleneck Extends but Geopolitical Premium Flaring; Brent Oil Will Likely Test $120

Morningstar’s update on select stocks from the energy sector.

So at this point, as far as the individual stocks and how we value those stocks, the only changes are going to be in the next couple of years where we use the market pricing for the valuation. And then from year three to year five is when we then either move stocks or move the prices of oil up or down to those long-term targets.

Fed Meeting Takeaways

**Dziubinski: **All right. Well, let’s pivot and talk about last week’s Fed meeting. As expected, the Fed left interest rates unchanged. Dave, did you have any important takeaways from Fed Chair [Jerome] Powell’s comments?

**Sekera: **Not really. As I expected, I think he talked a lot, but didn’t actually really save very much. In my opinion, for now, I think the Fed is just stuck. I don’t think that they can cut rates anytime soon to try and bolster the economy, because that’s just going to have the impact of driving inflation even higher than what it’s already going to do with oil prices. But at the same point in time, they can’t raise rates to try and fight inflation because that then is going to then weaken the economy, which is already on a softening path as it is. I did look at some of my notes here from listening to the conference. I mean, the only real takeaways would be one, I think very specifically he was talking about the Fed needs to see disinflation in goods to indicate that underlying inflation is going back to 2%.

As Fed Holds Steady, Oil Spike Has 2026 Rate Cut Expectations Shrinking Fast

Both the bond market and Fed officials now signal just one move to lower rates this year.

So, until you actually see that disinflation coming through, without that, I don’t think there’s going to be any rate cuts coming anytime soon. And then when he talked about oil-driven inflation and how that’s going to impact near-term inflation metrics, he really specified that the Fed will not assume what he called geopolitical inflation is transitory. My takeaway from that is that unlike 2021 and 2022, the Fed’s not going to wait too long to hike rates to fight inflation. I think that they’re going to be much more sensitive to inflationary pressures than what they were back then when they talked about inflation, thought of as transitory, and of course, back then it wasn’t. It continued to just keep going higher and higher until they finally started to fight inflation. But I think what’s actually going to be more important is going to be commentary from when the individual Fed governors talk.

I think generally they’re in a quiet period this week, so we’ll listen for more of their speeches as they’re out there giving their own personal views next week.

Bond and Private Credit Updates

**Dziubinski: **We’ve been talking a lot on The Morning Filter, of course, during the past few weeks about the war and oil prices and the stock market’s response, but there’s been some movement in the bond markets that we should be covering, too. Talk about where things stand in the US bond market today.

**Sekera: **Generally, I would say the US bond market has been struggling year to date. The Morningstar US Core Bond Index has fallen just a half a percent. And really it’s just due to interest rates rising across the curve. Just taking a look at the short-term rates. The two-year is up 40 basis points year to date, or at least year to date through last Friday. We’ll see where they go today. And to me, that also just kind of indicates that not only is the bond market really no longer pricing in a cut to the federal-funds rate, but that it’s now pricing in and actually a higher probability that the next move is going to be an increase to the federal-funds rate. The US Treasury had risen 20 basis points to 4.39%. We’ll see where that ends up today after all the machinations that we’re seeing pre-open.

I’d also just want to point out corporate credit spreads have been widening as well. If we look at the Morningstar investment-grade and high-yield bond indices, those are down 1% and eight-tenths of a percent, respectively. Year-to-date investment-grade spreads have widened 9 basis points, high yield spreads have widened 45 basis points. We might get a bit of a snap back today, but in my opinion, I think both still have further to widen. So, looking forward, thinking about what the impacts might be to the marketplace, overall, I don’t think the interest rates are high enough yet that they would be negatively impacting how people value stocks. If the 10-year were to get up to like 5%, then I’d actually start becoming much more concerned, but I think they can still rise further from here before it actually really start to impact equities.

Taking a look at the corporate bond market, the window to the new-issue market is still open, but I would say it’s probably not open for the more speculative purposes out there. I think those deals are probably going to get postponed for a while. Corporate credit spreads, while widening, aren’t necessarily wide enough to impact the general economy. High-yield spread as of last Friday was at 320. I mean, if it got up to like 500, then I’d start becoming much more worried, but it’s not wide enough at this point and hasn’t widened enough yet that it would really impact the funding for the economy.

**Dziubinski: **Private credit continues to be in the news. JPMorgan Chase JPM recently remarked some of its loans to private credit funds. BlackRock BLK restricted withdrawals from its HPS Corporate Lending Fund, and Morningstar just cut its fair value estimates on some of the alternative asset managers, including Blue Owl OWL, Ares Management ARES, and KKR KKR due to private credit concerns. So, Dave, are we still seeing more weakening in the fundamentals in private credit, and what do you think is next?

**Sekera: **From what I can tell, we’re definitely still seeing weakening in the fundamentals for private credit issuers. In fact, DBRS Morningstar just published another new note last week. They just were really highlighting the increase in distressed debt exchanges that they’re seeing, but they also noted fundamentals were still on a getting-worse path. They’ve noted that most of the defaults that they’ve seen were among those deals that were done in 2019 to 2021, but unfortunately, we’re now seeing those defaults start creeping into the 2022 vintages as well. I really have to hand it to the guys at DBRS Morningstar. I think from what I read anyway, they were the first out there really to start publicly highlighting the weakening in the private credit market. I think they started noting that at least as of a year ago, like last spring. So, for those of you who are interested in trying to keep up with the private credit market, of course it’s a private market, so it’s harder to follow.

But I would say go to dbrs.morningstar.com. You can register for a login there for free. Once you’ve done that, click the private credit tab, and then you can scroll down and click on the commentary to be able to pull up the regular commentary that they’re publishing there. As far as what’s next, more and more, I’m seeing institutional investors trying to get their money out of private credit. I think that’s a big reason why we’re seeing this increase in redemption requests. That’s just going to end up resulting in these people that own the private credit, having to sell those positions, probably sell them at lower valuations in order to move that paper to be able to fund these redemptions. And as they sell those at lower prices, that widens out the implied spreads on those deals. And once that happens, that then probably starts leading to wider spreads in the high-yield market.

As you get wider spreads in the high-yield market, that in turn widens out spreads in the investment grade market as well. And I think it also then has a big implication for mergers and acquisitions, especially for small and medium enterprises. I think that’s going to take a lot of the liquidity out of the potential M&A. I think the private equity sponsors will have a much more difficult time trying to fund any new transactions in that space. So again, getting back to, I think what your original question was is, how much of an impact will this have on the broader economy if there is less funding available? For now, I say there definitely will be an impact to some degree. It’s just hard to know exactly how much. I think we’re going to see a squeeze on capital for those small and medium-size enterprises.

The big concern I have is that if growth in the US does slow enough in maybe the second half of the year that we were to slip into a recession, that’s going to hit the small and medium enterprises the most. And if they’re already under liquidity pressures as it is, and we see a big spike in defaults in that part of the economy, that really does have a lot more implications among the broader economy and probably makes things even worse than they would’ve been otherwise.

Read the full company reports.

KKR & Company: We’re Lowering Fair Value Estimate to $115 per Share on Private Credit Headwinds

Blue Owl Capital: Fair Value Estimate Cut 33% to $12 per Share on Private Credit Concerns

**Dziubinski: **Talk a little bit about global bonds, Dave. What are the headlines on fixed income internationally?

**Sekera: **Just taking a look at European and government bond yields, through last Friday anyway, we’ll see where they trade today. But I mean, they’re pretty much all at the highest yields that I’ve seen since at least 2023, specifically looking at the developed European governments: France, Germany, Spain, Italy, and the UK. And I’d say that the reason that their yields have moved up as much as they have is I think those countries are more at risk to their economy from the higher energy costs coming from the conflict in the Middle East. The US, to some degree, is a little bit more insulated in that we are at least a net exporter of oil and gas. Otherwise, early this year, if you remember, we were talking a lot about Japan and Japanese government bonds, those interest rates are rising. Now, the 10-year in Japan is still only 2.64%.

So‚ on a nominal basis, it’s still really low, but that’s close to where it peaked out in January when we were highlighting the impact that that had on global markets. That’s the highest that that yield has been since 1997. Similarly, we talked a lot about the 40-year Japanese government bond. It’s still below its January peak, but that one seems to be rising pretty fast as well. And then the Japanese yen, I still like to keep an eye on that one. Last I saw is trading in the 159 handle. That’s the weakest it had been since January. It’s pretty much the weakest it’s been actually since before I got in the business. I don’t think it’s been above 160 since the mid-1980s.

**Dziubinski: **Wow. You’ve been around a long time, Dave. No, I’m kidding. Let’s take a step back. What would you say is the key takeaway or two here, Dave? What’s the bond market around the globe telling us, and what should investors be thinking about when it comes to fixed income?

**Sekera: **So generally, I would say what we’ve seen is the higher oil prices are going to negatively impact global economies as those prices flow through the system. Now, typically, what you see in the markets is if you’re getting worried about the weak economy, you would reallocate out of equity and put that money into fixed income, which in turn should push bond prices up and interest rates down. That’s not what we’re seeing. We’re actually seeing interest rates rising. So, of course, the question is, well, why is that occurring? So difficult question to give you an individual specific answer, but when in my mind, when I’m thinking about it, I think that the spike in oil is causing longer-term inflationary concerns to move higher. I think the developed-market deficits, which are already running at relatively high levels, probably limit the amount of fiscal policy that could be used to try and support those economies if the economy really does take much of a downturn.

And then lastly, when I look at the developed markets, all of them, debt/GDP is much higher now than it was prepandemic. So I think that’s now also starting to add in some concerns about potential credit risk, especially among those countries that have the most indebted levels already.

Micron’s Blowout Results

**Dziubinski: **We don’t have much on radar this week in terms of economic or earnings reports, so we’ll move straight to new research from Morningstar, starting with last week’s earnings report from Micron Technology. Results and forecasts were both stellar, yet the stock pulled back. Dave, why do you think the market was not impressed, and what did Morningstar think of the results?

**Sekera: **I think stellar is actually probably the understatement when I’m looking at what the results were. They beat revenue and earnings estimates by probably one of the largest margins I think I’ve seen over the course of my career. And then they gave guidance for the May quarter, which was essentially double FactSet consensus. All about the AI build-out boom, all about just the huge shortage that we’re seeing in memory semiconductors today. When you think about it, if you’re building a data center today, it’s a couple hundred million dollar, if not a couple billion dollar facility. You’re going to pay whatever you have to pay to be able to open it on time. You are not going to be the person going to your boss and saying, “Hey, we need to delay this weeks or months because we can’t get enough memory in there,” because of course you do that, you’re going to lose your job. So you’re going to pay whatever the market demands right now."

So specifically like DRAM prices, our analysts noted those are up 140% year over year. NAND prices up 170% year over year. And at this point, we’re forecasting prices to continue to keep rising into 2027. The real question is, how long can this last? We’ve talked about this company and some of the other commodity-oriented tech hardware companies a number of times over the past few months. To some degree, prices will fall once that new supply starts to come online. In fact, I think prices probably even fall once you really know exactly when that’s going to come online. You can forecast and see a couple of months ahead as they build new facilities, when they’re going to be up and running. So right now, if you look at our forecasts, we’re looking for prices to peak in late 2027, maybe early 2028.

And I think that’s probably when you see really the big inflection in pricing in that market. As you noted, it is interesting that Micron stock sold off after earnings. No one knows exactly really why. Now, my guess in having talked to the analysts, I think it just might be how much they increase their capex spending. They’re planning on spending $25 billion this year. That’s pretty close to being double the $13.8 billion that they spent last year. That’s three times the amount that they spent in 2024, which was $8 billion. So to some degree, when I’m thinking about the stock and where it trades, you’re kind of in a catch-22. The more the capacity rises, the faster they build it out to try and capture these currently high prices. That just means the sooner and more prices will fall once that new supply starts to hit the marketplace. I think at this point, seeing that pullback, the market might now be pricing in a shorter time frame for them to be able to capture these excess prices.

Micron Earnings: What’s Past The Stratosphere? Incredible Pricing Upcycle Blows Us Away Once Again

**Dziubinski: **Morningstar raised its fair value estimate on Micron pretty significantly up to $455. Is the stock attractive from a valuation perspective after that increase in fair value?

**Sekera: **It’s not. It’s currently rated 3 stars. I don’t know when the correction is going to be and when that occurs, but I think this is going to be one of those situations that when it does occur, this could be one that definitely gaps to the downside very quickly.

Nvidia Conference Takeaways

**Dziubinski: **Nvidia held its annual GTC conference last week, and some news from that event led Morningstar to inch up its fair value on the stock by $20 up to $260. What drove the fair value increase?

**Sekera: **Well, specifically, comments made by the CEO at the conference. What he said is that he now expects $1 trillion in cumulative revenue from their Blackwell and Rubin AI products from 2025 to 2027. That is higher than our forecast. So, once we incorporated that into our model, that led us to bump up that fair value.

**Dziubinski: **Market sentiment on Nvidia stock has, of course, really turned during the past several months. Talk a little bit about that and whether this stock looks like a buy.

**Sekera: **The stock is currently trading at a 35% discount to fair value, more than enough to put it in that 4-star range. If you look at the chart here on the stock, to me, it looks like we’re bumping up against the bottom of the range that we’ve seen since July 2025. And when I think about this stock and a lot of these other AI stocks, I think the market’s already incorporated into their valuation, the amount of earnings growth this year and the amount of earnings growth next year. Just looking at how much the hyperscalers have already guided toward for their spending, I think those numbers are probably pretty well baked in. I think now it’s just a matter of the market needs a lot more visibility on growth over the longer term. I think the market wants to see specific evidence of just how AI is going to be utilized to be able to justify enough revenue for the over $700 billion in capex spending that the hyperscalers are spending in 2026 just alone.

Nvidia: Raising Fair Value to $260 From $240, as ‘Agentic AI’ Drives a $1 Trillion Forecast at GTC

I think we need to see those specific applications, the ones that customers are going to be paying new money for, but I think you also need to see evidence of just how AI is going to be able to drive enough efficiency in order to get operating margins among your clients higher as well. So, I think really we need to see specific indications of both of those to get these stocks really to start breaking out to the upside.

Oracle’s Fair Value

**Dziubinski: **It’s time for our question of the week. Our question this week is from Carlos. And Carlos asks, “Could you explain how in the course of four to five months, Morningstar’s fair value estimate on Oracle ORCL went from $200 to more than $300, then back to $220. Don’t you think this is too much volatility?”

**Sekera: **That’s a great question, and I completely understand where the genesis of that question comes from. And to be honest, if I was using Morningstar products, I’d probably be asking the exact same question myself. Before I actually even get specifically to our answer there, I would just say anecdotally, I’ve seen more and larger swings in our fair values over probably the past nine months, more than I think I’ve seen over the past over 16 years that I’ve been here with Morningstar. And I would say the preponderance of those huge swings are all because of artificial intelligence and really trying to understand the long-term growth dynamics of AI and how to be able to incorporate that into your long-term assumptions. So again, what is the intrinsic value of a stock? What’s the fair value of a stock? The fair value of a stock is the present value of all the future free cash flow that a company’s going to generate over its lifetime. As we make any kind of assumption changes, that’s going to change our fair values.

Now, growth stocks in particular will have even greater swings in fair value because the valuation there is going to be really based on what your assumptions are for future growth. So, even just relatively small changes in those future growth assumptions can have pretty big changes in fair value today. To some degree, I think everyone will admit AI is going to have a huge impact, but it’s unknown exactly what that impact is going to look like and when it’s going to be. So then, even just trying to understand what AI does in the next year or two is difficult enough, much less trying to really put that into your model five years out or 10 years out. Getting back to Oracle specifically, as our example, last September, the company announced just major changes to their ongoing business and what they were planning on being over the longer term.

They’re really specifically going to focus on becoming a hyperscaler, providing cloud infrastructure for artificial intelligence, plans on just building out numbers of massive data centers. And so they provided at that point in time guidance to the marketplace that they thought they could generate $144 billion of revenue for Oracle Cloud by 2030. To put that in perspective, they did $10 billion of revenue there last year, and then they’re forecasting it to be an increase of 77% this year to $18 billion. But either way, I mean, you’re still looking at 14 times growth in just six years. So, when we incorporated that type of growth into our base case, that led our analysts to increase their fair value up to $330 a share from $205, which was really going to be based mostly on their legacy business. Now, as far as then lowering that fair value, subsequently we made some updates to our model a couple of different times, just as we updated and kind of incorporated other changes into our long-term outlook.

When you think about how we calculate the present value of a stock, we use what’s called a three-stage discounted cash flow model. Your stage one is the explicit forecast. That’s when the analyst is actually specifically making kind of individual annual revenue forecasts and margin forecasts and what they think the balance sheet is going to look like, how much the company’s going to spend on capex versus dividends versus whatever else they would spend money on. And then stage two is what we call the fade period. So, essentially what you’re doing is you’re taking the last year of stage one and then you’re going to fade that to what you think kind of a more steady state of that company is going to be. That fade period is usually anywhere from five to 10 years. And then stage three is essentially just a perpetuity formula of that steady state.

So, on Oracle, we recently lowered our economic moat rating to narrow from wide. And it was part of a major economic moat reanalysis that we conducted across, I can’t remember how many companies it was, but it’s pretty much everything that we thought could be substantially impacted by artificial intelligence. So, essentially, lowering that economic moat to narrow from wide means that we’re now modeling in that the company’s going to generate less excess returns over the longer time period than what we had in the model before. So, essentially, we dialed back the amount of excess returns that they would make in stage two and the length of how long they were going to make those changes. And of course, that’s what led to that big significant reduction in fair value.

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I’d also say, too, that in addition to looking at the fair values, I think you should also look at our Uncertainty Ratings. So in this case, we do have it assigned a Very High Uncertainty. And really that’s just to try and help communicate to investors situations like this where you’re just going to have a huge potential range of outcomes over the future, which is of course why we also require a greater margin of safety away from our long-term intrinsic valuation before these stocks would move into 4-star or 5-star territory. Conversely, these are also the stocks that we let run a lot higher above that fair value before they become 2-star or 1-star stocks.

**Dziubinski: **All right. Well, Carlos, thank you for your question. And members of our audience, if you have a question for Dave, you can send it to us via our inbox, which is themorningfilter@morningstar.com.

Stock Pick: SMG

All right, it is time for our stock picks of the week. This week, Dave’s brought us four stocks with strong brands that he likes today, and they also all seem to have a spring theme to them, too. The first stock pick this week is Scotts Miracle-Grow SMG. This one was a pick at some point last year. I don’t remember exactly when, Dave, so give us the highlights.

**Sekera: **Spring’s definitely around the corner. I know it’s supposed to warm up, I think like 20 or 30 degrees this week. Certainly looking forward to myself. And of course when I’m thinking about spring, thinking about all the things that spring brings. So in this case, taking a look at the stock, it’s a 22% discount to fair value, puts it in 4-star territory, 4.2% dividend yield. Now, I also like this one because it is a small-cap stock. It only has $3.6 billion in market cap. When the market recovers, I do think that small-cap stocks are still the most undervalued portion of the marketplace. So I think this one could have a good tailwind behind it as people look for small-cap stock opportunities. Now it does have a High Uncertainty. The company’s going to be subject to commodity costs. We’ve seen that in the price here over the past couple of months, but we do assign a narrow economic moat to the company, its moat source being based on its intangible assets.

**Dziubinski: **Scotts was having a really strong year until the war began, which you touched on a little bit. Walk us through the reasons for the recent stock price decline, and then tell us a little bit more about why you like the stock today.

**Sekera: **The first time we recommended it, I think was in June 2025. Had a pretty good run since then. I think it was up 18% through the end of February, but as you noted, it did drop 10% after the Iranian conflict began. The concern really here just is how much will input cost increases, pressure margins, will they be able to push these input costs to their customers? How quickly will they be able to put those through? So again, I think there’s a lot of concern about a potential shorter-term margin squeeze, and that is certainly a real risk for this company. Now, I think that at this point, they’ve probably already built their inventory for this spring sales season. So, I’m not really concerned about what margins will be this year. The real concern will be, what do oil prices do over the course of the next year?

If oil doesn’t moderate after the conflict in Iran subsides or doesn’t moderate enough, it will put a pressure on that part of their business, specifically fertilizer, which uses natural gas and oil in order to manufacture that fertilizer. But then again, that’s only 20% to 25% of their sales. They have a lot of other products, grass seed, plant food, potting soil, mulch, hydroponic equipment, pest control. So, a lot of other things here that aren’t going to be impacted nearly as much as the price swings that we would see in fertilizer. Looking forward, taking a look at the model here, I think our top-line growth estimates are pretty modest. Our five-year compound annual growth rate for revenue is only 1.8%. So really the story here is that we’re forecasting margins to gradually improve over the course of the next five years. As a reminder, this is also a business that’s undergone huge swings, really since the pandemic.

The business here just took off in those early years of the pandemic. People were at home, they were working at home. They spent a lot more time outside, so they were making sure that their yards look good. A lot of people took up gardening. But then once the pandemic started to ease, the business really got hit here as there just wasn’t as much emphasis on yard work or gardening. So, when the business fell in 2023 and 2024, those volume declines led to a pretty sharp negative fixed cost leverage. You also saw some negative mix shift away from what was the higher-margin products. So just thinking about the operating margin here, it was 10.5% in 2025. We’re looking for that to gradually improve, going up to 14.4% in 2026 and getting to what we think a long-term normalized margin should be for this company of 15% by 2030.

The company’s currently trading, or the stock is trading under 15 times earnings, but we’re looking for about 12% earnings growth over the next five years or compound annual growth rate of 12% in earnings over the next five years.

Read the full company report on Scotts Miracle-Gro.

Stock Pick: CLX

**Dziubinski: **Your second stock pick this week is a name you’ve recommended a few times in the last several months, and it’s Clorox CLX. Recap some of the key metrics on it.

**Sekera: **Clorox, we rate with a wide economic moat, moat sources being based on cost advantages and intangible assets. Trades at a 35% discount to fair value, puts it into 5-star territory, and sports a pretty healthy dividend yield at 4.7%.

**Dziubinski: **Clorox was moving up pretty nicely off its November 2025 lows, but it’s recently pulled back a bit. Why do you think that is, and why do you like the stock today?

Sekera: Well, I’m hoping as more and more people like myself are turning to thinking about spring and opening up the windows, it’s time to maybe start spring cleaning. So I’m hoping that maybe that gives it a good tailwind here. In the short term, maybe more people start paying attention because really when I’m thinking about cleaning supplies, to me, no other brand is as synonymous to cleaning as Clorox is. Now, unfortunately, I have to admit, I think I started recommending this stock too early, but I think it’s also a good example of starting with a smaller position and then setting your targets. And as the stock sells off, being able to dollar-cost average into whatever your full-size position would be. Just taking a look at our note here, I know Erin [Lash], who covers the stock, in last quarter earnings, noted she thought that she’s seeing better stabilization in the business.

She thinks the worst is probably behind us. Volumes only decreased 1% last quarter, but more importantly, she highlighted that the company’s not losing market share to private-label brands, that they’re really being able to hold the value of their brand name. And that’s really what’s going to be most important to the long-term story for this stock. The other thing that’s going on here is it is a bit of a story stock. So, Clorox began to transition internally to a new enterprise resource planning system back in July 2025. I think they just announced last month that they finally completed that entire transition. What happened is that as they were moving to that ERP, they had a sales pull-forward effect in 2025. So that inflated 2025 sales that then led to lower sales this year here in fiscal 2026 as that inventory got used up.

Fiscal 2026 for this company ends this June. So, we are looking for sales for fiscal 2027, which starts in the second half of this year, to rebound back more toward normalized levels. We’re looking for top-line growth next year of 13%, which drives earnings growth of 17%. Thereafter, we’re only looking for top-line growth of 4%, compound annual growth rate at 6% thereafter, but yet the stock’s trading under 15 times our 2027 earnings estimate. At this point, you can clip kind of that 4.7% dividend yield. And just comparatively, that’s a pretty high dividend. If you look at the Morningstar Investment Grade Bond Index, the interest rate there is only 5.1%. So, again, I think this is one with a very strong long-term economic moat that you can buy at a pretty reasonable price.

Read the full company report on Clorox.

Stock Pick: DECK

**Dziubinski: **Your next pick this week is a new name that we haven’t talked about before, and it’s Deckers Outdoor DECK. Run through some of the numbers and what brands Deckers is known for.

**Sekera: **It’s currently rated 3 stars, but I would note it’s right kind of on that border between 3 and 4 stars. Trades at a 22% discount to fair value. It’s a company we rate with a narrow economic moat based on intangibles. Really, when I take a look at the business here, it’s two brands. It’s UGG, and it’s Hoka. Those account for 51% and 45% of sales, respectively.

**Dziubinski: **As you pointed out, Decker’s looks about fairly valued based on our star rating system. Why do you like it anyway? And what’s Morningstar’s thesis on this new pick?

**Sekera: **As it gets warmer and warmer, there’s going to be more people strapping on their running shoes and going for a run. Now, personally, I’ve tried Hoka. It doesn’t really fit my foot very well. It’s not a brand that I use, but they’ve definitely been gaining market share to the detriment of Nike NKE over the past couple of years. In fact, Hoka is one of the fastest-growing running brands, both in the US and Europe. So, taking a look at our revenue assumptions, we’re looking at a five-year compound annual growth rate of 9%. Now, when we break that down, we’re actually looking only for a 5% average growth rate for UG, but a 13% average growth rate for Hoka. Now within Hoka, I would note we’re looking for 24% growth rate here for this year, but we bring that growth rate all the way down to 11% by 2030.

So again, as they’ve captured more and more market share, it gets harder and harder to grow at those double-digit type of rates. Overall, we’re looking for a compound annual growth rate for earnings over the next five years of 10%, and it’s another stock which is trading for just under 15 times earnings.

Read the full company report on Deckers.

Stock Pick: LULU

**Dziubinski: **And your final stock pick this week is another new pick. It’s Lululemon LULU. Give us the highlights.

Sekera: It currently trades at a 45% discount to fair value. So a huge margin of safety from our long-term intrinsic valuation. Even on a risk-adjusted basis, puts it well into 5-star territory. It is a company we rate with a High Uncertainty, so you need to be cognizant of that, but we do assign a narrow economic moat based on intangible assets.

**Dziubinski: **Now, this pick caught me off guard because I always associate Lululemon as being overvalued, and I just had no idea how much the stock had really pulled back. I think it’s down more than 60% from its highs. Tell us a little bit about what’s been going on with Lululemon and why the stock looks attractive today.

**Sekera: **I think this is just a good example of how, and we’ve talked about this a number of times over the years, a lot of times stocks can act like a pendulum. As you mentioned, this was very overvalued for a long period of time. It was a 1-star-rated stock at the end of 2023, and it’s now fallen a total of 67% from that peak. In fact, it was down 20% just year to date alone, but it looks to me at the chart, it might be going through a bottoming-out process. And even away from just the chart, what I’d note is that the stock traded up slightly after they gave guidance last quarter, even though that guidance was below expectations. So, to me, that might be a good indication a lot of the sellers of this stock at this point might be washed out. Now, the guidance, I didn’t even think it was necessarily all that bad.

They’re still looking for top-line growth of two to 4%. Granted, they’re looking for flat growth in North America, but that doesn’t surprise me either. They’ve been competing against a lot of other new athleisure brands for the past couple of years now, so that’s nothing new, but they are still experiencing pretty strong international growth. Operating margin, they’re expecting that to contract by 250 basis points. A lot of that’s just due to dislocations from tariffs, higher-than-usual markdowns. They did have a couple of new product launches, which just didn’t take. But overall, our analyst thinks that these are just short-term issues for the company and that will normalize over time. And then lastly, what I like about the situation is you now have an activist investor involved. Elliott Investment Management announced that they started taking a position last December. Essentially, they’re coming in, they’re looking to force out the old CEO, bring in new management, helping the company refocus their business back on core competencies, looking at different ways to improve the operations, have better product and discipline.

As I noted, they did have a miss that last product season. So, some inventory mismanagement was having some pressure on their costs as well. Taking a look at our model here, looking for that modest top-line growth. We’re incorporating the hit to the margin this year, and then only slowly bringing that margin back toward normalized levels, not until 2030. So, really four years that it takes to get back to that normal type of margin. Lastly, they do still have $1.2 billion of authorization remaining on their share-purchase program. So buying back stock here this far below our fair value, certainly accretive for long-term investors. And lastly, they’re only trading at 13 and a half times the midpoint of the earnings range they gave in their guidance. In my mind, everything going on with this company right now, especially if we’re going to see a change in management, I got to imagine the company’s giving pretty conservative guidance at this point.

So, I think this is one where they’re probably guiding the market lower, just so that way when you have new management come in, it’s going to be easier to surprise to the upside.

Read the full company report on Lululemon.

**Dziubinski: **Well, thanks for your time, Dave. Now, before we go, we have a correction to tell our audience about. On the March 9, 2026, episode of The Morning Filter titled “3 Stocks to Sell and 3 Stocks to Buy Instead.” We removed the commentary about private credit as a percentage of base management fees because we are unable to determine equivalent comparisons across alternative asset managers. We hope you’ll join us next Monday for The Morning Filter podcast at 9 a.m. Eastern, 8 a.m. Central. In the meantime, please like this episode and subscribe. Have a great week.

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