4 Stocks to Buy Before Their Big Discounts Disappear

In this episode of The Morning Filter, co-hosts Dave Sekera and Susan Dziubinski discuss whether last week’s software stock selloff was overdone and if the AI trade is dead. They cover why Zimmer Biomet ZBH and Applied Materials AMAT are earnings reports to watch and what this week’s CPI numbers could mean for the market. Tune in to find out if Alphabet GOOGL, Amazon.com AMZN, Advanced Micro Devices AMD, or Palantir PLTR are stocks to buy after earnings—and which stock just received a 78% fair value upgrade from Morningstar.

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They review Dave’s latest stock market outlook and whether there’s any opportunity left in small-cap stocks after their runup. They close with four stock picks that currently trade at big discounts but that may not for long.

Episode Highlights

1. Software Stocks & the AI Trade
2. On Radar: CPI & Earnings Reports
3. Latest: GOOGL, AMZN, Outlook
4. Stock Picks of the Week

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

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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.

Before we get started, we have two programming notes. First, we will not be streaming a new episode of The Morning Filter next Monday, Feb. 16, due to the Presidents Day holiday. Second, we wanted to let the audience know that we dropped a bonus episode of The Morning Filter last week. I interviewed Morningstar’s European market strategist about international stock opportunities. We’ll be doing more bonus episodes in the future based on your questions and feedback, so keep them coming. You can reach us via our inbox at TheMorningFilter@Morningstar.com.

Software Stocks & the AI Trade

All right, good morning, Dave. Let’s kick off this week by reviewing last week’s market movement. We saw a multiday selloff in tech last week, with stocks like Microsoft MSFT, Salesforce CRM, ServiceNow NOW all finished the week down between 7% and 14%. And, of course, these are names that Morningstar has been recommending over the past year or so. So tell us what your take is on this ongoing pullback in these names. Is AI just going to eat the lunch of software companies?

**David Sekera: **Oh, good morning, Susan. What a way to start the show. So as far as like the software stocks, I mean, they’d all been falling for at least the past year now, if not even a little bit longer. And to be honest, I think it is a little unknowable exactly how it’s going to work out, how it’s going to evolve, how AI and software are going to interact with one another. So I really recommend to investors to read a note that was recently published by Dan Romanoff. He’s our equity analyst that covers a lot of these software names. The title to it is “The only thing to fear is fear itself;” We see buying opportunities in software.” So that kind of sets up our discussion here this morning. So just a quick synopsis of his note: I would say, essentially, our investment thesis is such that we don’t think companies are going to recreate entire software platforms. We think it’s more likely that third-party providers will end up using artificial intelligence to be able to enhance their platforms, add more economic value for their clients, and that overall, in the long term, we still think it’s going to be more cost-efficient to use third-party software providers in the future.

Where are we today with the software companies? Where are we as far as like artificial intelligence displacing software? Generally, I think, what our team has seen, what they call like a do-it-yourself AI software projects at most companies, have been failing; they have not been able to replace the software that they’ve been using from outside providers. And in fact, the Agentic AI software from those software companies really is only just starting to even come online. In and of itself, if you look at all the software companies, what we consider to be true AI offerings is still only about 2% of revenue. So I’d say a lot of this is still yet in its infancy, and still yet to come in the future.

So for investors, what should you be looking at if you want to start diving in on some of these software companies? A lot of these stocks are not only 4 stars, but deep into 5-star territory at this point. So I’d say, look for those that you consider to be the most complex, the most complicated software platforms, software that has the most touch points within their own clients’ businesses. So those will have the greatest switching costs. And, of course, those that are most embedded into their client operations. I know the two software picks Dan has most recently highlighted is going to be Microsoft. We’ve talked about Microsoft ad nauseam on the show for months, if not well over a year now. But when I think about ServiceNow, I think one of the reasons Dan likes that stock and that company is their entire business model is made to automate processes. And that’s really what AI at the end of the day is used for. So, I mean, their entire business model is trying to figure out how we improve the business process at individual companies. Right now, it has the best AI uptake in the software space, I think it’s double what the average is across most other software companies. So I think that’s a really interesting one for people to take a look at if you want to get involved in the software space.

**Dziubinski: **Now, we’re also seeing key names from the AI trade names like Nvidia NVDA and AMD losing ground this year, so is the AI trade dead?

**Sekera: **No, not dead yet. I mean, when I think about the AI buildout boom, it’s still in the part of the technological cycle where it’s growing at an accelerating rate. The projects that have already started, those are going to get completed. There’s no evidence at this point that anyone is pulling back on the AI buildout boom. In fact, it’s really just the opposite. We’re seeing more new money going into the AI buildout boom. Looking forward, I think we’ve got at least another year of these type of conditions before anyone reevaluates and potentially starts slowing the pace of spending. What we’re seeing is that the hardware needed for the AI buildout boom is in shortages across the entire supply chain. And when that new computing capacity comes online, there’s people lined up out the door waiting for that capacity, huge amount of demand. So no, at this point, still probably at least another year of this AI buildout boom yet to come.

**Dziubinski: **All right. So then, given that, Dave, at this point, how should investors be thinking about AI as a theme to invest in?

**Sekera: **So, as far as a theme to invest in, personally, I would still stick with those companies that we think are the leaders in artificial intelligence technology. Those that are at the forefront of the technology and the design, companies like Nvidia. Even AMD, both are 4-star-rated stocks, trading at 23% discounts to fair value. Broadcom AVGO, another 4-star-rated stock, even at a deeper discount, 31%. Maybe Taiwan Semi TSM, that’s a 4-star-rated stock at an 18% discount.

What I would recommend to investors, though, I’d steer clear of those companies that are much more commodity-oriented hardware technology. We’ve seen those stocks just skyrocket over the past four to six months. As I talked about before, there’s a lot of shortages in those commodity items right now, as the buildout boom is just buying everything and anything they can. Of course, right now, prices and margins are exceptionally high. The problem with these kind of companies is that as more capacity comes online, that will put a huge amount of pressure on both price and margin. So we expect that probably by the middle of next year, we’ll start seeing a lot of those type of commodity items, the amount of supply increase, So I would expect those stocks probably to get hit by the middle of next year. So I’d be very cautious of a number of those stocks.

On Radar: CPI & Earnings Reports

**Dziubinski: **All right, let’s pivot over to look at the week ahead. We have January CPI numbers to look forward to. Now, given that you’ve said before that you expect the Fed to hold rates until at least June, do you think this week’s inflation reading is going to drive any market volatility, or is the market focused on other things right now?

**Sekera: **Yeah, I don’t think so. I mean, it’s all about earnings and the AI buildout boom right now and the software stocks. So, I mean, unless CPI were to come out a lot hotter than expected, then, yeah, that’s going to drive some concern and volatility. But as long as it comes in anywhere close to expectations, I think it’s going to be a total nonevent.

**Dziubinski: **All right, well, let’s cover some earnings reports you’re going to be watching this week. We’ll start with Applied Materials AMAT. Stock is up about 25% this year. So what are you going to want to hear about here? And how does the stock look from a valuation perspective, heading into earnings?

**Sekera: **Yeah, I mean, not only is the stock up a lot this year, it’s almost doubled, I think, since last September. For those of you that don’t know, the company is the largest semiconductor weight for fabrication equipment manufacturer. And this is what we’ve seen with all the other semi equipment manufacturers. Very strong results, even stronger guidance. I would expect that it’s probably more likely to see our fair value increase than stay the same or decrease from here. Now, having said that, it’s a 2-star-rated stock, already at a 43% premium. So even if we’re going to bump up our fair value after the results come out, it still looks like a pretty pricey stock.

**Dziubinski: **OK, well, Zimmer Biomet ZBH has been a pick of yours in the past, and it also reports this week. Now, last quarter, the company brought down its guidance, and the stock’s been down quite a bit ever since. So, first question, is the stock still a pick? Second question, is there anything management might say that could lead to a pop in that stock price?

**Sekera: **This one has been admittedly pretty disappointing. In fact, I know our analyst has reduced her fair value estimate by about 25% since the end of 2024. So it is currently a 5-star-rated stock, trading at about a 30% discount. We rate the company with a medium uncertainty and a wide economic moat. I’d say overall revenue has been a little disappointing. I would like to see some better performance in revenue. But taking a look at our note and our model, it appears to me that I think costs are actually the bigger problem for the company right now. So specifically on the call, I’d be listening for management really to focus on taking what I consider to be specific and significant actions to reduce those costs and start to improve margins. I think you’re going to need for that to happen before you can get any kind of stock bottom here, much less to begin a recovery.

Latest: GOOGL, AMZN, Outlook

**Dziubinski: **All right, well, let’s move on to some new research from Morningstar. We’ll start with the earnings reports that came out last week from Big Tech, starting with Alphabet GOOGL. Now, the stock pulled back after earnings, and Morningstar held its fair value estimate at $340. So what did Morningstar think of the results?

**Sekera: **I mean, the results for fourth-quarter earnings, very strong revenue across the entire company, up 18%. Now, admittedly, operating margins did contract a little bit, by about 50 basis points, taking them down to 31.6%. But overall, I don’t think we’re concerned about the operating margin contraction, the little more expenses that they’re putting through. As far as like the AI buildout boom goes, I mean, revenue at Google Cloud accelerated. That’s at 48% growth. I mean, that’s grown enough now that the cloud is about 16% of the total revenue of the company.

I’d say it’s not just this quarter, but in fact, the past couple of quarters, I think the biggest takeaway here is that Google has successfully integrated AI within Google search. They’ve been using AI overviews, AI mode. That’s been able to really mitigate a lot of the competitive threats that people have been concerned about in the search business. And not only does it protect the search business, but it’s actually helped them improve their ad pricing. But at the end of the day, I don’t think anyone really cared about earnings. All about the AI capex guidance, and they certainly did not disappoint. They came out with their guidance for capex, $180 billion. That’s double what they spent in 2025. Takes them up to 38% of sales going to be spent on capex this year. And in fact, I think that was not only, not only didn’t disappoint, but I think that’s now causing some indigestion among investors. I think a lot of investors are really just trying to understand just how is Google going to be able to monetize that amount of spending over time and be able to generate returns at least in line with cost of equity? Just a giant number that they’re going to be spending this year.

**Dziubinski: **Yeah. Now, Alphabet’s been a stock that you recommended several times in 2025. It’s up about 68% during the past 12 months. So is it still a buy today?

**Sekera: **Not really. I mean, it’s at a 5% discount, really not that much margin of safety. It’s within that 3-star range. In this one, I think kind of that easy money that you talked about has already been made last year. However, I would certainly keep this one on a watchlist. So if we see this stock get pulled down, anytime the market sells off, with the volatility I expect this year, there will probably be better entry points ahead.

**Dziubinski: **All right. Well, Amazon AMZN stock finished the week down 12% last week after reporting somewhat mixed results and a $200 billion capex forecast for 2026. Wow. So what did Morningstar think of those results, and any changes to the fair value estimate?

**Sekera: **Results were good. All segments came in slightly ahead of our forecast, but as you mentioned, no one cared. I mean, it’s all about the capex guidance. So before we get into Amazon, I just want to give listeners a little bit of background here. So if you remember last fall, Oracle ORCL, they announced that they wanted to transform their business into being an AI business, and they were going to spend $80 billion on capex. And then Microsoft, that looks like they’re spending about over $100 billion run rate on capex right now. We had Meta META when they came out with earnings, they said, we’re going to come out with, I think, the midpoint of their guidance was $125 billion of capex, and then Google comes out with $180 billion, so this point Amazon with their earnings, they came out and they’re just chuckling and went, “Yeah, hold my beer.” They announced $200 billion of capex spending this year. So again, let’s now put that in perspective. The total amount of capex for these five companies in 2024 was only $260 billion. So, I mean, at this point Amazon this year at $200 billion, it’s getting close to what those total of those five companies spent in 2024. Now, they increased that by $180 billion in 2025 and spent $440 billion. And now, when I look at these five companies, they’re guiding to over $700 billion of capex spending in 2026. That’s a $290 billion increase from 2025.

So I’d say generally for, I mean, the entire AI trade, these companies in particular, these dollar amounts are now getting to be so large that we’re at the point where I think investors are really starting to question whether or not the AI use case is going to allow these hyperscalers to be able to generate the returns that’s going to be needed in the years ahead to justify this amount of spending.

**Dziubinski: **All right, well, let’s talk about Amazon’s fair value. Morningstar’s fair value is 260 right now. So Amazon does look like a buy, right?

**Sekera: **It does. It’s a 4-star-rated stock, trading at a 19% discount. I mean, everything is going right for this company right now, so it looks undervalued to us today.

**Dziubinski: **All right, well now, as we mentioned at the top of the show, AMD was hit pretty hard last week after earnings. The stock finished the week down about 12%. Morningstar maintained its $270 fair value estimate on AMD. So why the steep selloff, and does AMD look attractive today?

**Sekera: **So, taking a read through our earnings note here, AMD’s fourth-quarter revenue came in ahead of guidance, came in at $10.3 billion. That’s up 34% year over year. That was up 11% sequentially. First-quarter revenue guidance was above consensus expectations. That represented a 32% growth rate year over year. To be honest, I don’t think we really know why the stock dropped as much as it did. I mean, the best guess coming from Brian Colello—he’s the sector director equity analyst that covers this stock—he thought that maybe coming into earnings, investors just had been too optimistic about the revenue growth expectations for server CPUs. Overall, the company reiterated its long-term guidance. I’d say that’s essentially what’s in our model with our projections. As you noted, we held our fair value unchanged. So with as much as the stock fell, it is a 4-star-rated stock at a 23% discount.

**Dziubinski: **All right, well, Palantir PLTR was up after reporting, but then the stock fell afterward. Morningstar raised its fair value estimate to 150. So what do you think of Palantir’s results? And is there any opportunity with the stock now, after it’s pulled back, or is it still kind of pricey?

**Sekera: **Well, as you mentioned, we did increase our fair value to 150, that comes up from 135, but that’s only an 11% increase. So that’s really not necessarily that meaningful of a raise, in my mind, for a company with kind of the growth that we’re looking for here. The fair value increase is really just incorporating an even higher revenue guidance that the company provided to the marketplace. Now, considering the stock peaked at $210 a share last November, I think it’s fallen about 35%. It’s now down into 3-star territory at this point. But I just caution investors, what you have to believe, even to get to our fair value today, our five-year compound annual growth rate for revenue is 42%. Our five-year compound annual growth rate for earnings is 39%. I mean, the stock is trading at 120 times our estimate forecast for EPS this year. And in fact, even if you go all the way out to 2030 with those kind of growth numbers, it’s still trading at 38 times our 2030 earnings forecast.

**Dziubinski: **Well, Teradyne TER was up double digits after reporting,and Morningstar really hiked its fair value estimate on this one. So tell us about that fair value increase, what drove it, and whether the stock looks attractive.

**Sekera: **Yeah, the fair value increased to $250 a share from $140. So for those of you that don’t know the company, they make test equipment for semiconductors, hard disk drives, circuit boards. I mean, everything that’s in shortage right now in the marketplace because of the AI buildout boom. But in my mind, when I think about this company and what they do, I consider it to be a mid-, if not late-, cycle technology hardware company. Yes, they are benefiting from the AI buildout boom. We ratcheted up our 2026 and our 2027 forecast by quite a bit. So, for example, our 2027 revenue forecast is now 20% higher than what it was prior to their earnings number. If we go further out, our 2029 revenue forecast is now 25% higher than what we were forecasting previously. And even after ratcheting up these projections, if you look at the stock, it’s still 2-star-rated stock, trading at a 20% premium. Based on those higher numbers, our valuation still puts the stock at 30 times 2027 earnings. So market obviously putting a much higher valuation, much higher growth rate than that into their own expectations.

**Dziubinski: **Let’s talk about a couple of consumer names that reported last week, starting with Pepsi PEP. Stock was up nearly 5% after earnings, and Morningstar held its $166 fair value estimate. So what did Morningstar make of the results?

**Sekera: **I think generally we’re pretty happy with where the numbers came in. So organic revenue was up 2%. We saw an increase in beverage sales, which was more than enough to offset the drop in food sales. And as far as food sales goes, I think the good news there is it looks like the decline in volume is starting to decline, so declining at a declining rate. It was only down 2%, previously been down 3% or more over the past couple of quarters. Good operating margin expansion, came in 140 basis points higher to 13.9%. And I’d just note with Pepsi overall, we could actually still see some upside performance. From here, you’ll find a look at our projections for 2026. We’re looking for 4% sales growth, 5% earnings growth. Both of those numbers are the low end of management guidance, so if the management is able to perform in line with their own expectations. Probably even still some more upside left here as far as their performance goes.

**Dziubinski: **Now you recommended Pepsi a time or two last year. Do you still think it’s a buy?

**Sekera: **It’s had a really good run since we made those recommendations, but probably not necessarily a new buy at this point. The stock’s trading at 170 per share. Our fair value is 166. So puts it just above that 3-star range right now.

**Dziubinski: **Now, Hershey HSY, which is another prior pick of yours, reported last week, and the stock finished the week up more than 18%. So what did Morningstar make of those results? And is Hershey still a pick today?

**Sekera: **Overall, I’d say it’s very good top line growth. We did see some margin erosion because of the higher cost from cocoa and so forth. But I think the good news here is that we’re starting to see the impact from those higher cocoa prices starting to abate. We think there’s going to be some very good, meaningful gross margin rebound in the year ahead. In fact, if you look at the earnings estimates from the company, their guidance, they’re looking for $8.20 to $8.52 per share. That would be up 30% to 35% compared to last year. So I’d say that’s in line with the investment thesis that we’ve had on this company, based on the situation with the cocoa prices. Stock’s had a really good run. We recommended it a number of times last year. So, depending on which of The Morning Filter episodes you look at, it’s up anywhere from 25% to 43%. But at this point, it’s now trading at a 10% premium. Just starts to put that into that 2-star territory. So depending on where you bought this one, maybe it’s now a good time to at least take some of the profits off the table. Don’t necessarily need to sell the entire position, but maybe take a little bit off the table. And if we do get any kind of drawdown, you can always buy it back at cheaper prices.

**Dziubinski: **In some non-earnings-related news, Devon Energy DVN, which has been a pick of yours, announced merger plans with Coterra CTRA. So what do you think of that news? And is there an opportunity here with Devon stock?

**Sekera: **This one was actually kind of funny because we thought Devon was actually more of an acquisition target itself, rather than an acquirer. But overall, our analyst team thinks that the acquisition of Coterra by Devon makes sense strategically. Taking a look at our fair value, we made a slight increase up to 57 a share from 53. The stock is up 30% or so from when we recommended it, but it’s still at a 23% discount. So it still puts it in that 4-star range. So as far as energy picks, still like that one today.

**Dziubinski: **You recently published your new stock market outlook, and we’ve provided a link to that in the show notes. So let’s talk about some of the highlights. Let’s start with market valuation today. How does it look?

**Sekera: **Looks OK. I mean, we’re trading at a 5% discount. I mean, that still puts us within the range that we consider the market to be fairly valued overall. So I’d say, as far as when you look at whatever your own personal targeted equity allocation is for your portfolio, I’d still remain market weight the US equity market overall.

**Dziubinski: **From a valuation perspective, we’re at market weight on equities today.

**Sekera: **Exactly.

**Dziubinski: **OK. So then let’s break down the market by capitalization and style. How do valuations look there?

**Sekera: **So by capitalization, we still like overweighting small-cap stocks. They’ve been outperforming since the end of, well, actually, since, like November of last year. But that’s still where we see the best value by capitalization. In order to do that, you probably need to underweight mid-caps and probably keep a market weight on large caps. By style, I would look to overweight growth. That’s the most undervalued area. In order to overweight that, you probably need to underweight the core category, even though it’s not necessarily trading at a big premium. And I would still market-weight value stocks, although I keep my focus there really on looking for those individual value stocks that are trading at pretty deep discounts to intrinsic valuation. And I think having those value stocks will offset some of the volatility that I expect to see in the growth category over the course of this year.

**Dziubinski: **So we did talk a little bit last week about the small-cap stock rally. So small caps still look undervalued, even after that rally.

**Sekera: **So they’re still at a 13% discount to fair value. They’ve been outperforming. So they’ve got very good momentum behind them. Really, one of the few areas that are still undervalued in the marketplace today. Thinking about 2026 and what’s ahead, we are looking for the Fed to ease monetary policy. Looking for at least two more cuts, more likely than not in the second half of this year. Overall, our US Economics team is looking for long-term interest rates to decline. The economy’s running much better than expected. And then also just thinking about 2026, and we’ve seen it starting to pop up, but I expect to still see a lot more mergers and acquisitions, whether that’s private equity buyouts or strategic acquisitions. I think all of those will help keep small-cap stocks doing pretty well this year. And of course, I just note, for most investors, I still think you’re better off in ETFs than—or even mutual funds—than individual stocks. You get that diversification inherent in those portfolios, and then once you have that diversification, you’ll then start looking at and picking away on some individual small caps.

Stock Picks of the Week

**Dziubinski: **All right, well, it’s time for everyone’s favorite part of the show, and that’s your picks of the week, Dave. So this week, you’ve brought us four stocks that are currently trading at attractive discounts and that have some either stock price momentum or are tied to a key theme that should help narrow their discounts over time. So your first pick this week is Clorox CLX. Run through the numbers on it.

**Sekera: **Clorox is trading at a 27% discount, more than enough to put it in 4-star territory. Nice, healthy dividend yield at 4.2%. We rate the company with a medium uncertainty and a wide economic moat. And that wide economic moat being based on their cost advantages and intangible assets.

**Dziubinski: **Now, Clorox stock is having quite a good year. It’s up 19% already. And the company reported earnings last week as well. So give us the highlights from the earnings report and tell us why you like the stock.

**Sekera: **Yeah, well, actually, I’d started recommending this one a while ago and unfortunately, I think I was too early in recommending this stock. It definitely did trade down for a while before it bottomed out. But I think this is also a good example of why I always recommend starting with a partial position, leaving some dry powder, so that way you can dollar-cost average in to the downside. In this case, when we look at earnings, I think I’m seeing some stabilization here. It appears that the worst is behind us. Volumes this past quarter were only down 1%. But more importantly than that, we’re also making sure that the company is holding its market share. It’s not losing market share to private label at this point. So it is just a stock that I consider to be pretty undervalued, even when I think we have very modest forecast assumptions. Taking a look at the top line, we’re only looking for an average of 1.3% compound annual growth rate over the next five years. Looking for operating margins only just to get back toward historical averages. So at this point, looking for 7% average earnings growth. And the stock’s only trading at 16 point something times our fiscal 2026 earnings estimate so still looks pretty attractive, even after the pop thus far this year.

**Dziubinski: **All right, your second stock pick this week also reported earnings last week. It’s Mondelez International MDLZ. So give us the key metrics on this one.

**Sekera: **Mondelez is a 5-star-rated stock, trades at an 18% discount to fair value, has a 3.3% dividend yield. We rate this company with a low uncertainty and a wide economic moat, that wide economic moat being based on its cost advantage and intangible assets.

**Dziubinski: **Now, Mondelez is also, the stock’s also having a pretty good year, it’s up about 11% yet still looks pretty undervalued. So why do you like it?

**Sekera: **Generally, I’d say Mondelez has really had the same problems as all the other food manufacturers that we’ve been talking about for quite a while. Volumes still remain under pressure. At the same point in time, costs have been increasing. They’re having a tough time pushing through the price increases. So we’re definitely seeing a lot of pressure on margins. But overall, Mondelez has very strong brands. In fact, our analyst has noted that 70% of its snack offerings are either at least holding, if not gaining, market share. And I think what I like about this company is, with the US market trading at pretty high valuations, a lot of people are asking for stock picks that are going to be more levered to the emerging markets. So, in this case, you can get essentially a domestic company that has a good blend of sales in the emerging markets. I think about 40% of sales here go to EM, whereas most US food companies are only 25 to 30%. And in this case, management has said that they’re targeting at least mid-single-digit, long-term growth in the emerging markets, whereas you’re only going to get like low-single-digit growth in the developed markets. Taking a look at our model here. Total revenue five-year compound annual growth rate 3.8%. We’re looking for some gradual margins, margin improvement over the next couple years, but again, just getting back toward more historical type averages. So we’re looking at 10% earnings growth from 2026 to 2029 and still only trades at 17 times our 2026 earnings estimate.

**Dziubinski: **Your third pick this week is Constellation Brands STZ. Give us the highlights on this one.

**Sekera: **It’s a 4-star-rated stock, 25% discount, 2.5% dividend yield. We rate the company with a medium uncertainty, also a wide economic moat based on cost advantages and intangible assets.

**Dziubinski: **Now, Constellation Brands, here’s another stock with some momentum. It’s up nearly 20% this year. So why do you think it still has more room to run?

**Sekera: **Well, and unfortunately, this is another one where I probably started recommending this too early. It did still have further to go to the downside before it bottomed out. But again, another good example of dollar-cost averaging in the positions to the downside. In this case, I think we’re starting to see some evidence that the decline in alcohol consumption is over, starting to see consumption stabilizing at the current levels. Revenue from beer only declined 1% this past quarter. That’s much better than the 5% contraction that we’ve been seeing for quite a while now. The company also noted some new product launches are helping to offset those declines. Now, of course, beer, specifically the Corona and Modelo brands, are about 90% of sales. So that’s why we’re following beer so closely here. Operating margins now finally starting to hold in there. And then, lastly, the company for the past three quarters, has made over $800 million worth of share buybacks. That should be very value-accretive to shareholders over time, considering how much of a discount that stock is trading at. Taking a look at our earnings estimate for this year at $11.57, the stock’s only trading at 14 times that multiple. So still looks pretty attractive to us. Even after that pop.

**Dziubinski: **All right. And then your final pick this week is Palo Alto Networks PANW. What’s the quick overview?

**Sekera: **So it’s a 4-star-rated stock, trades at a 29% discount, not appropriate for dividend investors as they don’t have a dividend. Now, it is a tech stock, so we rate it with a high uncertainty, but that really doesn’t cause me any concern in this case. We do rate the company with a wide economic moat based on its network effect and switching costs.

**Dziubinski: **Now, unlike your other picks this week, Palo Alto doesn’t really have that positive market sentiment behind it. So why is this one a stock that you think could see its discount narrow? Is it because of that cybersecurity theme?

**Sekera: **Yeah, you know me. I like the cybersecurity industry from an investing point of view. To some degree, I think all of the cyber stocks, this one included, have gotten pulled down with the other software stocks. And when I think about software in general and AI, and then think about cybersecurity, I don’t think that people are going to make homegrown AI platforms in order to try and do their own cybersecurity software. If anything, I think the increase in artificial intelligence and the potential that that has for hacking makes cybersecurity even more important in the future than it is today.

Cybercrime, of course, is a very high severity issue, yet the cost of protecting against it is only a small percent of the cost of incurring it if you were actually to get hacked. Cybersecurity is only a small percent of overall IT budget. So it’s not an area where I think you have management looking to cut costs. Huge switching costsif you’re to try and move from one cybersecurity platform to anotherand, of course, trying to build your own has a lot of risk to it. So at this point, I think this is one of those areas within software that has a lot of economic moats that protected this business overall. Taking a quick look at our model, we’re looking for 13% top line growth, compound annual growth rate, and looking for 27% earnings growth. This is, in my mind, still one of the faster-growing areas in technology, yet trading at a very large discount to our long-term intrinsic value.

**Dziubinski: **All right. Well, thanks for your time this week, Dave. Viewers and listeners who’d like more information about any of the stocks Dave talked about today can visit Morningstar.com for more details. And as a reminder, we will not be streaming a new episode of The Morning Filter next Monday due to the Presidents Day holiday. But we’ll be back on Monday, Feb. 23 At 9 a.m. Eastern, 8 a.m. Central. In the meantime, please like this episode and subscribe. Have a great week.