3 Cheap Stocks to Buy Now as Small Caps Heat Up I February 2, 2026

The Morning Filter Podcast Summary - February 26, 2024

Key Concepts:

• Federal Reserve Chair Nomination (Kevin Worsh): Impact on market expectations for interest rate cuts.
• US Dollar (DXY Index): Analysis of recent weakening and potential implications.
• Japanese Yen & Bond Market: Stability assessment and potential risks.
• Earnings Season: Focus on Alphabet, Amazon, Pepsi, Mondelēz, and Clorox.
• AI & Capex: Market reactions to spending on Artificial Intelligence and Capital Expenditures.
• Small-Cap Stocks: Outperformance, valuation, and potential for continued growth.
• Economic Moats: Assessing competitive advantages of companies.
• GLP-1 Drugs: Impact on consumer spending patterns, particularly in the food and beverage sector.
• Intrinsic Valuation: Morningstar’s method for determining a stock’s fair value.

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I. Market Overview & Federal Reserve Chair Nomination

The podcast began with a discussion of President Trump’s nomination of Kevin Worsh as the next Federal Reserve chair. While the market experienced a sell-off on Friday, Dave Sakara believes other factors were more impactful than the nomination itself. Worsh is considered a “safer choice” compared to other candidates previously discussed, and Fed fund futures haven’t significantly changed regarding rate cut probabilities. Sakara noted Worsh’s historically “hawkish” stance could offset concerns about a potentially “dovish” approach in the coming quarters.

II. US Dollar Weakness & Implications

The US dollar recently reached its lowest level since 2022. Sakara advises investors not to be overly concerned, dismissing “scaremongering” headlines. He recommends investors analyze the Dollar Index (DEXID DXY) across three timeframes: short-term (past year – trading range), medium-term (5-year – similar to early 2022 levels), and long-term (since 1973 – currently higher than many periods, like 2003-2015). He emphasized monitoring for accelerated depreciation coupled with surging US government bond interest rates as a true cause for concern.

III. Japanese Yen & Bond Market Update

The Japanese yen and bond market have stabilized, with long-term Japanese government bond yields down 10-30 basis points from their January 20th peak. Sakara cautions that markets often “test” the Bank of Japan’s ability to maintain lower rates. Key levels to watch are 3% on the 10-year and 4% on the 40-year bonds; however, the rate of change is more critical. Strengthening of the yen could indicate “repatriation” – unwinding of the carry trade.

IV. Earnings Season Analysis – Key Companies

• Alphabet: The market’s reaction will reveal whether it’s viewed more like Meta (AI-driven growth) or Microsoft (traditional software). Focus areas: Google Cloud growth & guidance, advertising growth vs. guidance, and capital expenditure (capex) – the market’s response to capex will be key.
• Amazon: Focus on margin improvement driven by efficiency programs and AWS (AI cloud platform) growth & guidance. The market will scrutinize whether capex is driving growth or failing to generate economic value.
• Pepsi: Currently a four-star rated stock. Monitoring volumes is crucial, particularly impacts from low-income household spending and GLP-1 drugs. Innovation and commentary on GLP-1 drug impact are also important. Potential brand rationalization is anticipated.
• Mondelēz: A five-star rated stock trading at a 20% discount. Volume performance and pricing in emerging markets are key. GLP-1 drug impact assessment is also relevant.
• Clorox: A five-star rated stock at a 30% discount. Focus on normalization after ERP software implementation, sales-to-channel inventory ratios, and gross margin rebound. Morningstar expects 4% topline growth and 20% operating margins, exceeding current market expectations (1% and 17% respectively).

V. Morningstar Research & Stock Picks

• Microsoft: Despite exceeding guidance, Microsoft’s stock fell 10% post-earnings. Sakara attributes this to market uncertainty, potentially grouping Microsoft with traditional software companies rather than AI beneficiaries. Maintained at a four-star rating with a 28% discount to fair value – a potential buy.
• Meta: Strong revenue growth (24% Q4, 30% Q1 guidance) and increased capex guidance drove market enthusiasm. A four-star rating with a 16% discount, but near the three-star threshold. A “levered bet” on AI monetization.
• Tesla: Fair value increased to $400/share due to expansion of robo taxis and projections for Optimus robots. A three-star rating, requiring a greater margin of safety before a buy recommendation.
• Apple: Strong iPhone growth, but market concerns about China exposure, memory costs, and AI strategy limited positive reaction. Trading at fair value (three-star rating).
• ServiceNow: Despite strong results, the stock tumbled due to broader software market sentiment. Fair value lowered to $200.
• UPS: Maintained fair value. Focus on merger synergies and divestiture of the aerial platform business.

VI. Small-Cap Stock Picks (Undervalued Opportunities)

Sakara highlighted the outperformance of small-cap stocks and presented three picks:

• Sensada Technologies (Four-Star): 28% discount, 1.4% dividend yield. Turnaround story with a new management team focused on profitability.
• TX (Four-Star): 26% discount, 1.2% dividend yield. Benefits from merger synergies and divestiture plans.
• Mosaic (Four-Star): 21% discount, 3.2% dividend yield. Potential beneficiary of a commodity supercycle and a rebound in fertilizer demand.

VII. Conclusion & Key Takeaways

The podcast emphasized the importance of long-term investment perspectives, thorough research, and understanding market dynamics. While acknowledging short-term volatility, Sakara highlighted opportunities in undervalued small-cap stocks and companies positioned to benefit from long-term trends like AI and commodity cycles. He stressed the need to monitor key economic indicators (interest rates, dollar strength) and company-specific factors (earnings, capex, margin improvement) to make informed investment decisions.