5 Stocks to Buy While They’re Still Reasonably Priced

Key Takeaways

• Is it time to worry about oil prices?
• Market heavyweights Microsoft MFST, Meta Platforms META, Amazon.com AMZN, and Apple AAPL report this week; here’s what to watch for.
• Whether Tesla TSLA, Alphabet GOOGL, or Intel INTC are stocks to buy after earnings.
• Is the tide about to turn for ServiceNow NOW and other software stocks?
• How to find stocks offering growth at a reasonable price.
• GARP stocks to buy.

In this new episode of The Morning Filter podcast, co-hosts Dave Sekera and Susan Dziubinski discuss what today’s oil prices may mean for the economy and the market. They explain why this week’s Federal Reserve meeting may be a nonevent and how to think about quarterly earnings reports when you’re investing for the long term. They preview upcoming earnings reports for Microsoft, Meta, Amazon.com, and Apple and debate how long the good times will continue to roll for Seagate Technology STX.

Sekera and Dziubinski cover whether Tesla is a buy on its pullback after earnings, what the key takeaways were from Alphabet’s report, and if the time may be right for ServiceNow’s stock to recover. They explain how to spot stocks that offer growth at a reasonable price and close the episode with a handful of GARP stocks to buy.

Got a question for Dave? Send it to themorningfilter@morningstar.com.

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’s been going on in the market, what investors should have on their radars for the week, some new Morningstar research, and a few stock ideas.

Now we have one programming note this week. We dropped a bonus episode of The Morning Filter last Thursday. Dave and Morningstar Chief Economist Preston Caldwell shared their outlooks for the economy and for the market for the remainder of the year. If you haven’t done so already, tune in wherever you get your podcasts.

Oil Prices: Time to Worry?

All right, good morning, Dave. We haven’t talked about oil prices in a while and kind of been on a little bit of a roller coaster with them the past week, to say the least. Where are we this morning in terms of oil prices?

Dave Sekera: Good morning, Susan. Definitely a lot of volatility going on still in the oil markets. And I think we’ve seen this exact same setup multiple times over the past couple of months. Essentially, during the week, there’s a military action, there’s a retaliation, retaliation to the retaliation, and so forth. But then it always seems like Sunday evening before futures open, there are some headlines out there, some positive news, each side agrees to deescalation. I think what we see is each side kind of wants to go right up to that point, right up to that line in the sand, but neither side is willing to cross that line.

So this morning, oil’s coming back down. It’s down quite a bit. Last I checked, oil was at $83 a barrel. That’s down from the low $90s where we were last week. So, if you can, maybe wait a couple of days to fill up the gas tank, I think you’ll be able to save a couple of bucks. But at the end of the day, we’re still 40% higher in the oil markets than where we were preconflict.

Dziubinski: Given that, Dave, are you concerned about oil prices today, and what would you expect the market impact to be?

Sekera: I would say toward the end of last week, I was getting more concerned about the rate of increase in oil prices, but certainly not to the point that I was panicking at any one point in time. When I’m thinking about how oil impacts consumers, the economy, and then the markets, there’s really four different ways that I’m thinking about it.

First and foremost, the most concerning aspect is the rate of increase. Because if anything else, the faster oil prices go up, the more negatively it’s going to impact the consumer because, of course, it just takes time to adjust to those higher prices. Secondly, higher oil prices will cause inflation. That then impacts monetary policy, at least in the short term. So, if oil goes up too much, causes inflation, that’s going to cause the Fed to hike rates, which then is negative for the markets if we have tightening monetary policy.

Third, I think about it as far as terms of the absolute level. At what level of oil prices and gasoline prices does that then cause demand destruction in the economy? I want to put this in a little bit of perspective. It used to be historically, everyone always talked about a $100 barrel of oil really being that inflection point where it’s going to start to negatively impact the economy and consumers. But when you think about inflation over the past decade or so, that $100 oil back then is not the same as $100 oil today. In fact, if you use the CPI calculator—which, as an aside, I think probably underestimates inflation—$100 oil in 2014 would be $140 today, or $100 of oil in 2008 would be $150 today.

And then lastly, I think about gasoline as a percentage of disposable spending. It’s currently 2% of disposable spending right now is spent on gasoline. Back in 2008, the last time we really had kind of that energy shock, it was 4%. So, it’d need to double just to get back to where it was back then. So in my mind, I think oil would need to go a lot higher. And then it would also have to stay there before it makes really any difference in the medium-term outlook.

Uneventful Fed Meeting Ahead

Dziubinski: And now we have a Fed meeting. You mentioned the Fed coming up later this week. What’s the market expecting in terms of any rate hike?

Sekera: Personally, I think it’s going to be another nonevent. I expect that they’re going to talk tough on inflation, that they’re keeping a close eye on it. They’ll hike rates if they need to. Looks like the market’s pricing in a 30% probability of a rate hike. I don’t think it’s going to happen. I think that’s probably too high of a probability for a rate hike this time around.

But looking forward, you have to remember there’s no meeting in August. So, the next meeting isn’t until mid-September. Looks like, according to the calendar, it’s Sept. 15 and 16. At that point in time, the market’s pricing in an 80% probability of a rate hike. Who knows, maybe. But in my mind, I think we just have to see what the data is and really what the world looks like then to see when and if the Fed hikes rates. My guess, based on what I see today, I think it’s probably later in the year than September, but just my own opinion.

How to Use Earnings Reports

Dziubinski: All right. And September is a ways away. In the meantime, we have some heavy hitters coming out with earnings this week, but before we get to them, Dave, walk us through how Morningstar thinks about quarterly earnings and how that might be different from other analysts in the media.

Sekera: At the end of the day, we don’t try and play the quarterly earnings-per-share game. Our analysts certainly have their own quarterly forecasts, but we don’t publish them. In my mind, I think it’s really kind of nonmeaningful if you have any one individual quarter a company beat or miss by a couple of pennies. That in and of itself really doesn’t tell you anything.

Now, you always have to remember, too, companies manage Wall Street expectations. They put their guidance out there for the most part, and then they will talk to the Wall Street analysts to try and help the Wall Street analysts get to a relatively narrow range of where the consensus for earnings are. And they always try and set it up so that they can beat that consensus by a couple of pennies in order to try and make themselves look good. I always find that the media overly focuses on those beats and misses, essentially because I think it’s just easy for them to write clickbait headlines to try and drive views. But in those kinds of articles, there’s really no real analysis as far as why they either beat or missed those earnings.

So, when I think about earnings and the way that we look at earnings, it’s really much more looking at them as being a guide. Our earnings results track to our forecasts, and this really tells us whether or not our longer-term investment thesis and forecasts are still sound. Now, if there is a beat or a miss, that’s the time to then reevaluate what those forecasts are and your thesis, both whether to the upside or to the downside. And that’s when you start getting more meaningful changes in fair value when you then have to go back and reevaluate those forecasts because again, those longer-term forecasts are going to make much bigger changes in what we think the fair value of a company is today.

And then depending on whether or not we make that fair value change or whether we hold our fair value, if we don’t really think there is a big change to the valuation of the company, that’s when you start getting those larger discrepancies away from fair value, whether to the upside, in which case that’s probably a good time to take some profit. Or conversely, if you get a big downside gap and we’re holding our fair value steady, that’s a good time probably to start dollar-cost averaging in more to the downside.

MSFT, META, AMZN Earnings on Tap

Dziubinski: Well, we have mega-caps Microsoft, Meta, and Amazon reporting this week. And they’re all pretty much AI stories these days. All three of those stocks look undervalued, according to Morningstar as we’re heading into earnings. What are you going to be listening for in general from this group?

Sekera: Well, I think the biggest change in the market right now is how people are thinking about the AI story. So, it’s really no longer just about who can spend the most capex the fastest, but increasingly it’s becoming more and more about who’s actually showing how they’re monetizing it and the timing of that monetization. So, as far as capex spending goes, still want to listen. Are they still ramping up capex spending? If so, by how much and for how long? But I think the question is now, at this stage of the AI story, are we at the part of the story where capex spending, if it’s increasing, is now starting to get punished? For example, we saw Alphabet, that stock sold off after their earnings, and they had talked about increasing their capex spending.

And second of all, we’ve got monetization. So I think the market’s becoming very focused on both the external and the internal use cases. The external use case, of course, is what exactly are they selling to their clients externally? For example, you have cloud hosting. Now that’s a business that’s still, depending on the company, growing well over 30%. We still think cloud hosting is capacity constrained. In our mind, we still think that there are very elevated levels of capex spending yet to come, a long runway for future growth there, but we’ll see. We now have Meta entering that space. They’re new competitors. So, I think we’re going to listen very closely for exactly how much compute are they planning on spending and what they’re charging for it compared to the other big hyperscalers.

Now, as far as internal monetization goes, taking a look at some of my notes here, Microsoft, I think it’s all about their own AI models, the adoption of using those models and the monetization for that internally. With Meta, of course, it’s always still all about ad sales. It’s just the amount of improvement that you’re getting from utilizing artificial intelligence and the amount of automation that they can put in there in order to drive those ad sales even higher. And Amazon, I think it’s a combination of both. So of course it’s about ad sales. That’s really a high-margin portion of their business. But again, how much can AI help drive more and more retail sales?

I think there’s going to be an increased focus on margins, and I think there’s also a focus on really the road map for margins. So, with all this capex spending we’ve had for the past, call it 18 to 24 months, people are trying to figure out when does depreciation expense materially start ramping up? And are they going to have enough revenue and be able to drive that revenue enough here in the short term to offset that depreciation expense as it starts to row through their income statement?

And then lastly, I think a much bigger focus on free cash flow. What we saw with Alphabet last week is they’re actually going to be free cash flow negative this year, maybe even next year. So, the question there is going to be for all of these companies, just how negative is free cash flow going to be? Of course, if they have negative free cash flow to be able to spend as much on capex as they’re planning on, they’re going to have to go to the bond markets and do more and more new issues there. So, the question is how long are they going to be free cash flow negative for before we see free cash flow become positive once again?

AAPL Earnings Preview

Dziubinski: Now Apple also reports this week. Morningstar assigns Apple a $290 fair value estimate. It’s trading a bit above that, and it’s been doing pretty well, Apple stock lately. What are you going to want to hear about here?

Sekera: I think Apple will probably be the least interesting of the mega-caps next week. I know some of the things we’ll be listening for are just more details on the impact of higher and higher memory prices, what that’s going to do to their operating margins this past quarter and the next couple of quarters. I think we need to hear a discussion on the impact of cellphone prices, whether or not there’s a pull-forward effect. For example, I think there are a lot of people like me that still have the old iPhone 12 or even older models. So, are people going to end up deciding, “You know what? I’m going to go ahead and trade in for the iPhone 17 now before prices start going up this fall for the iPhone 18.” If we have that pull forward, what does that mean for the next couple of quarters?

With Apple, I still think we need a better discussion of what they think the AI use cases are going to be. Now, Apple itself has steered clear of really this capex spending on the AI buildout boom, which I think will probably serve them well over the longer term. But for now, we’re still not really understanding what that killer case is for AI that’s going to drive a lot of new economic value for individual users like myself.

STX: More Good News Ahead?

Dziubinski: All right. Well, Seagate Technology STX reports this week. The stock’s up triple digits this year, trades well above our $680 fair value estimate. Looks like a good deal of price risk with this stock depending on where earnings come out. Is that fair to say?

Sekera: I think this is really an indicator for all of these commodity-oriented technology hardware companies. And we’ve talked about not just this company, but all of these companies have done the same thing. The market’s focus really has switched over the past, call it six to nine months, to these companies because there are huge shortages for their products. And so therefore they can charge whatever they want to charge. We’re seeing their operating margins skyrocket.

But the real question is how long are these shortages going to last; until, either, one, new capacity is brought online that satisfies that demand? Or two, when will the rate of demand begin to slow? So if the hyperscalers start to lighten off the pressure on the accelerator, so even if the rate of increase. I’m sorry, actually, if I think about it, if the dollar amounts are still increasing, but they’re going up at a slower rate of increase, I think that’s going to be a negative for all of these stocks. I just want to put it into perspective as far as what we have modeled into our financial model and really thinking about what we’re expecting for revenue.

So in this case, in 2024, the company did $6.5 billion dollars of revenue. In 2025, that increased by 40% up to $9.1 billion. Here in 2026, we’re looking for another 33% increase that takes sales up over $12 billion. And for 2027, we’re still modeling in another 36% increase up to $16 billion in revenue. By the time you get out to 2030, we’re projecting the company to do $35 billion worth of revenue. That’s a five-year compound annual growth rate of 31%, meaning that’s five times larger in our model than the amount of revenue that they did in 2024.

Now, on top of that, let’s take a look at earnings or margins. The operating margin in 2024 was 6.9%. We’re looking at 32% this year. We have it expanding to almost 47% by 2030. So we’re looking for earnings this year of $14.66, so not quite double the $8 that they did last year. By 2030, we have earnings per share going all the way up to $69.50. Yet, even after all of that growth is in our model, it’s still a 2-star-rated stock trading at a 35% premium. So, if you’re paying the prices in the marketplace today, you have to be assuming that our forecasts are way too low and that the company’s going to be growing even faster than that five times greater revenue by 2030 than what we’ve seen.

Is TSLA a Buy After Its Pullback?

Dziubinski: All right. Well, let’s move over to some new research from Morningstar about some of the companies that reported earnings last week, and we’ll start with Tesla. Now, Tesla’s stock was down 14% after reporting mixed results and increased capex spending. Morningstar held its $450 fair value estimate on the stock. What’s Morningstar’s take on Tesla after earnings? And is the stock attractive on pullback?

Sekera: I would say it’s really no surprise to us. As you mentioned, the fair value is unchanged. That just tells me the analyst doesn’t see anything different now than what he saw pre-earnings. We talked about this last week. We were looking for higher deliveries, which would drive revenue growth higher. And then we’re also looking for capex to be higher as well. We talked about why capex was going on. I think maybe the only difference was just the amount of capex that they’re spending on building new facilities. They’re expanding their vehicle and their battery production, I think even more than maybe what we had in the model. But again, it wasn’t enough to change the long-term thesis for this company. So, as far as where the stock is trading today, it is looking very attractive. It’s a 4-star-rated stock at a 30% discount. And I think this is also a really good example of looking at how long-term intrinsic valuation often plays out over time compared to the market price.

So I think this is a good one. Take a look at the price/fair value chart really over the past five or six years. You can see in 2021 and 2022, this stock skyrocketed, for the most part was in 2-star, if not touching into 1-star territory. In 2022, the stock sold off, came back down to our fair value, overshot to the downside, went into 4-star, if maybe even touching 5-star territory a couple of times. And we’ve just seen a lot of volatility then, where the stock goes up a little bit too far, comes back down too far, goes back up too far. I think we’re back in the cycle now where the stock was trading too high at the end of 2025. It’s been selling off; it’s come down to the downside. So, if this is one that you want to play, now looks like a good time to either be dollar-cost averaging into the selloff, or if you’ve wanted to own Tesla in the past and you haven’t, now’s a good time maybe to start getting involved.

GOOGL Earnings Takeaways

Dziubinski: We also saw Alphabet stock pull back after earnings about 7%. Morningstar maintained its $433 fair value estimate on the stock. What stood out to you in Alphabet’s earnings report?

Sekera: Really strong earnings report when you think about a company this size and just how much they’re still able to grow. As far as the top line goes, they beat our estimates there. I think the top line grew 24%. If you look at Google Cloud, that’s where they host AI platforms, that was up 82%. Operating margin overall expanded by 200 basis points. And that, of course, was really driven by that cloud segment. The operating margin there expanded by 15 points.

Overall, in our view, we think the company’s making substantial progress on their AI monetization. Specifically, our team points to the backlog for Google Cloud. The backlog there now is over $500 billion. It was about $100 billion a year ago. Google search, as much as Google already controls the search market, that was still up 17%. So, a lot of good monetization using AI within their own business.

When I think about the investment thesis here and having talked to our analyst, this is probably one of the only few AI plays out there that we see them being involved in the entire AI stack. So when you think about it, they have their own AI models that they’re able to use both internally as well as sell externally. They’re building AI semiconductors for their own use that they’re now also starting to sell externally. You have all the infrastructure that they’ve built for Google Cloud, and then you’ve also got the applications to be able to monetize AI as well. So, in my mind, when I look at their business model, I think they have very good diversification across the entire economic value chain for artificial intelligence.

Dziubinski: That all sounds great, Dave. So then why did we see the stocks sell off so much after earnings? Was it the capex spending?

Sekera: I think so. And I think it’s like we talked about at the beginning of the show, the market’s really right now in the midst of this change in focus. It used to be these companies just couldn’t spend enough capex on AI. Everyone wanted to get that first-mover advantage in AI. And we’re now at the point where the focus is, “OK, well, you’ve got all this capex spending going on, but how are you going to actually make money in order to be able to make a return on all that capex spending?”

In this case, while Google is showing very good early stages of monetization, they still raised their capex further. They’re looking at over $200 billion of capex spending in 2026. I don’t know, Susan, I kind of used to remember when $200 billion used to sound like a lot of money. But with that amount of capex spending, they’re going to be free cash flow negative this year and next year. So, to some degree, I think all of these hyperscalers are now turning into what the market’s looking at as really a show-me story on that monetization.

Dziubinski: Alphabet was a pick of yours before earnings. Pulled back. We held our fair value. Is it safe to say it’s still a pick?

Sekera: Well, if I liked it at $350, I love it at $320. All kidding aside, I mean, there’s no change to our fair value. Our fair value is still $433 per share. So, with where it’s trading today, it’s a 26% discount. In our mind, that’s a pretty large margin of safety for the uncertainty that we think about the long-term business prospects for the company. So, enough to put it well into 4-star territory.

INTC Earnings Review

Dziubinski: Let’s talk Intel INTC. Intel reported earnings. Stock fell nearly 8%. Excuse me. Morningstar raised its fair value estimate on the stock, though, by $15 to $103 per share. Unpack those results, Dave.

Sekera: When you look at the results, they posted a very strong quarter, but it’s all based on the AI buildout boom. Huge, just tremendous demand increase for CPUs, which are used to manage AI workloads. So, with all of these data centers being built out, I think people underestimated the need for those CPUs, which are kind of the workhorse for managing those AI workloads. Revenue up 25% year over year. Gross margin came in at 42%, that’s two points higher. And they then boosted their guidance for the third-quarter revenue to 19%, which was above consensus.

So to put this all in perspective, when we look at the server CPU market, it looks like it’s now expected to grow here in the short term at a 50% compound annual growth rate, such that it’ll end up being 4 times higher than what a lot of previous forecasts were, even as recently as last November. So, the fair value increase was a combination of a couple of things. I mean, really just incorporating these higher short-term results, making a couple of increases to our longer-term assumptions. Our team also noted the company made some progress on their manufacturing, seeing better yields in their latest 18A process. And then their 14A process is supposedly on pace for high-volume production later in 2028. So, as you noted, that all impacted our fair value.

I just would say this is one where I think you just have to be very cautious. There are a number of different CPU competitors out there, and to some degree, we’re just in that part of a cycle where a rising tide is lifting all boats. But this is one where I’m very cautious with all of these technology companies that the hardware that they’re selling is, in my mind, very commodity-oriented. They’re not the leaders in technology for AI. So if we get any kind of hiccup in the story, any kind of guidance pullbacks, these are the ones that I would not be surprised to see them gap to the downside.

NOW’s Strong Results

Dziubinski: I’m just checking, the star rating this morning is 3 stars. So, according to Morningstar, it looks fairly valued when you adjust for uncertainty.

OK, let’s talk ServiceNow NOW. Results came in better than expected, and Morningstar maintained its $165 fair value estimate on the shares. The market seemed to kind of just shrug off the results. So, walk through them, Dave, and tell us when the negative sentiment around software names like ServiceNow might begin to clear.

Sekera: I wish I knew, Susan. I wish I knew. It was just kind of this same story, different quarter. As you noted, better-than-expected results, a slight increase to their guidance, but the market is still just pricing in with all of these software stocks that AI is either going to disrupt or even completely displace their business over time.

In our view, there was just no change to our investment thesis. We think ServiceNow is a key software beneficiary of AI. Our analyst noted that deals with five or more AI products grew 5.5 times year over year. They now have over a billion dollars worth in annual contract value. Sequential growth accelerated to 40% for those AI products. So, the fair value’s unchanged. And this is one I’d recommend. Go read Dan’s note; Dan Romanoff’s the equity analyst who covers the stock. His quote here that I picked out: “One of the best blends of growth and margins in enterprise software, and results continue to show AI is not hurting the firm’s fundamentals.” Overall, 4-star-rated stock now trading at a 40% discount to fair value.

What Is GARP?

Dziubinski: Wow. All right. Well, it is time for our question of the week. If you have a question for Dave, you can reach us at our email address, which is themorningfilter@morningstar.com. All right, Dave, on the July 13 episode of The Morning Filter, you called Broadcom AVGO a GARP stock, and GARP, of course, stands for growth at a reasonable price. Walk through what it means and how to find GARP stocks.

Sekera: A lot of investors overall are just unwilling to pay high multiples for growth stocks. And it just comes down to you have to have a lot of belief in these companies’ growth to be able to pay those high multiples in the short term. So, I think one way for value-oriented investors to find growth stocks that they’re willing to invest in is to look for those stocks that have an attractive PEG ratio. So, PEG ratio is price earnings/growth. So your PE ratio divided by your longer-term earnings growth rate. And in that case, I think it’s OK to pay for high PE ratios here in the short term so long as you have that expectation for those faster growth dynamics. In our case, I look at our five-year compound annual growth rate, and I compare that to the PE ratio today.

Stock Pick: NVDA

Dziubinski: All right. Well, that’s a great segue into your picks this week, which all happen to be GARP stocks. How convenient. The first one on your list is Nvidia. Give us the highlights.

Sekera: Nvidia is a 4-star-rated stock. Last it traded at a 26% discount at fair value. Not a big dividend payer, only a half a percent dividend. Now, cautionary, it is a Very High Uncertainty, so there’s certainly a wide range of outcomes over the next five years, but it’s a company we rate with a wide economic moat, that wide moat being based on switching costs and intangible assets.

Dziubinski: So then, Dave, what makes Nvidia an attractive GARP stock pick today?

Sekera: It’s interesting. If you look at the chart on this one over the past few months, the stock’s kind of been in a trading range between $190 and $230 per share. I think it’s at $208 as of close last Friday. Our fair value is $280 a share. So to some degree, I think the market, it just turned its attention toward those commodity-oriented tech hardware stocks. While we have the shortages going on, those stocks have moved up because earnings have just been skyrocketing. But when I look at Nvidia as a longer-term investor and thinking about artificial intelligence, the forward PE on the stock is currently at 22 times. Our five-year compound annual growth rate for earnings is 35%. So that gives you that PEG ratio of only 0.6.

Stock Pick: AVGO

Dziubinski: Well, your next pick is one I mentioned in the question, and it’s Broadcom AVGO. Run us through the numbers.

Sekera: It’s a big discount to our long-term intrinsic value. A 40% discount, puts it well into five-star territory. Again, not a big dividend payer if you’re looking for dividend stocks. It’s well under 1%. Another company, of course, tech companies in general, we’re going to rate at least with a High Uncertainty, if not some of them with a Very High. And in this case, another company we think has a wide economic moat; that wide economic moat being based on switching costs and intangible assets.

Dziubinski: Walk us through in detail how Broadcom qualifies as a GARP stock.

Sekera: Broadcom makes what’s called XPUs. Those are custom AI accelerators, and they’re used in order to optimize AI workloads. Overall, we think the market’s underestimating the growth dynamics for these XPUs. Company thinks the company is guiding conservatively. So, it looks like a pretty good setup fundamentally. Does have a pretty high forward PE ratio based on our earnings expectations for 2026. We’re looking at a 33 times multiple, but our five-year compound annual growth rate, our assumption there puts it at 46%. So, if you take that 33 times, divide that by 0.46, you end up getting a PEG ratio of 0.7.

Stock Pick: LPLA

Dziubinski: Your next pick this week is not a tech stock, it’s LPL Financial LPLA. Give us the bird’s-eye view on it.

LPL is also trading at a 40% discount, 5-star-rated stock. Again, not a big dividend payer. Growth stocks typically don’t, only four-tenths of a percent. We rate the company with a High Uncertainty, but we also rate it with a wide economic moat, that moat being based on cost advantages and switching costs.

LPL has been a pick of yours before, and we actually had a question come into our inbox not long ago about it. So, spend a little time on LPL, why you like it, and how it fits that GARP stock definition.

Sekera: Well, first, I do have to caution. It looks like earnings are coming up this Thursday after market close. So, whether or not you want to buy the stock, getting ahead of that, your call. Probably don’t necessarily have to get ahead of earnings with as much of a discount to fair value. Even if the stock takes a pop, it’s still going to be well undervalued. At the same point in time, if you want to take a small position beforehand, and if for whatever reason you get any kind of selloff, then you can dollar-cost average into the downside. The company is the largest US independent broker/dealer, so we think there are a couple of different ways that they benefit over time. We’re looking for an increase in assets under management, just one, as the markets go up over time, that increases their AUM.

We’re also looking for the AUM growth just because more and more people are using investment advisors, and we’re seeing more new advisors come onto their platform. Now in this case, the forward PE ratio is pretty modest. And if you look at the five-year compound annual growth rate, we’re looking for that to be over 20%. So, if you look at a forward PE of 13 times, divide that by 20, that gives you your PEG ratio of 0.7.

Stock Pick: TMUS

Dziubinski: T-Mobile TMUS is your next GARP stock pick. What are some of the key metrics here?

Sekera: T-Mobile stock is trading at a 23% discount, puts it in 4-star territory, pretty respectable dividend yield at 2.3%. Medium Uncertainty, narrow economic moat, that narrow moat being based on efficient scale.

Dziubinski: We’ve talked a little bit on the podcast before about a lot of these wireless names selling off after SpaceX’s IPO. So go into why those concerns might be a little bit overblown for T-Mobile and then talk about how it fits your definition of a GARP stock.

Sekera: Sure. As you noted, all the stocks, AT&T T, Verizon VZ, T-Mobile had all been kind of on that downward trend after that SpaceX S-1. I think part of the base case for the market to price SpaceX where it is, people expect that SpaceX is going to get directly involved in the traditional wireless market. We don’t think that’s going to happen. We think that the technology for the satellite coverage is really being best used for an overlay on top of traditional wireless, really mostly used for more rural kind of areas. In fact, T-Mobile, I believe, does have an agreement with SpaceX where they’re using that satellite coverage in those rural areas, but really it’s only being used for text messages, which we really use at data for voice chat. So again, if you have one of those voice chat apps, you can use it there, but they don’t have a cellphone service using the satellite just yet. I think that’s something that they still need to improve the technology for. So, that’s something you’re not going to see roll out until sometime in the future.

Now, T-Mobile did have earnings last week, and the stock kind of dropped pretty hard afterward. Now it did take a nice bounce on Friday, but it’s still down from where it was pre-earnings. We think the market’s overreacting. We think this is much more of a change in traders’ sentiment around the stock than it is a change in the underlying fundamentals. To some degree, our analyst has noted that the company had kind of conditioned traders in the past to expect this steadily increasing growth forecast quarter after quarter. And that didn’t happen this time around. They noted there was a drop in new accounts, but fundamentally, it was offset by lower churns. We’re not necessarily all that concerned about it.

We trimmed our fair value slightly. We lowered it by 2% to $235 from $240. That’s really not an indication of any change in the longer-term outlook here. It’s really just kind of dialing into maybe slightly lower near-term results than what we had modeled before. Forward PE on the stock is 17 times based on our earnings estimate for this year, whereas our five-year compound annual growth rate, our expectation there is for 24%. In fact, that’s a much faster growth rate than what we’re expecting for either Verizon or AT&T. We expect this company has a better ability to increase prices. We’re looking for them to take some market share over time, looking for them to complete a couple of tuck-in acquisitions, and that’s how we get to our 24% growth rate there. So, this is one where that PEG ratio comes in at 0.7.

Stock Pick: CNH

Dziubinski: Then your final pick this week is CNH Industrial CNH. Run through the numbers on it.

Sekera: CNH trades at a big margin of safety from our fair value. 46% discount, more than enough to put it well into 5-star territory. Again, not much of a dividend yield, a little bit under 1%. It’s a company we rate with a Medium Uncertainty, which you kind of wouldn’t expect for that much of a margin of safety here. And we also rate it with a narrow economic moat, that moat being based on switching costs and intangible assets.

Dziubinski: When you and I were talking about your picks before today’s episode, you said that CNH isn’t your typical GARP stock. How so, Dave? And then why are you including it as a GARP pick this week if it’s not?

Sekera: Well, I include it with a GARP pick because it meets all of the PEG ratio kind of numbers that I was looking for. But yeah, it’s not kind of that stereotypical GARP play. Typically, a GARP is a growth stock, like a technology stock, where you’re looking for big earnings growth based on growth in the underlying fundamentals because that business is expanding. In this case, this is really much more of a value play that we think is going to be coming off of cyclical lows. But that, in our mind, is what’s driving the growth here. The company’s revenue, 80% of it is agricultural equipment. The other 20% comes from construction. If you look at what has happened over, call it the past five years, if you remember back in the first couple years of the pandemic, 2021, 2022, there were just huge increases in the price for corn, wheat, and soybeans.

That led to a big pull-forward effect in agricultural equipment sales. That pulled forward the sales that you otherwise would’ve expected in 2023, 2024, and to some degree, even in 2025. So, the stock has slid for really the past three years because we think that it’s at very depressed earnings levels. It’s now trading at 33% of 2022 earnings, and we’re looking for a forecast of earnings per share of $0.48 in 2026. So, down a lot from where it was in the past. Now, based on some normalization as we get past this pull-forward effect, we’re looking for $1.00 in EPS in 2027. So, the forward PE on the stock right now is about 22 times based on this year’s, which, of course, with the kind of growth we’re looking for in the rebound in earnings, we get to a five-year compound annual growth rate of earnings of 32%. That puts that PEG ratio at 0.7.

Dziubinski: All right. Well, thank you for your time this week, Dave. Viewers and listeners who’d like more information about any of the stocks Dave talked about today, you can visit Morningstar.com for more details. We hope you’ll join us again 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 good week.