3 Stocks to Buy After Earnings I November 10, 2025

Key Concepts

• Economic Outlook: Slowing economic growth, no recession expected, potential for reacceleration in late 2025.
• Federal Reserve Interest Rates: High probability of a December rate cut, influenced by economic data, not significantly by government shutdowns.
• Earnings Reports: Analysis of Palantir, AMD, Fortinet, Sherwin Williams, Huntington Ingalls Industries, Zimmer Biomet, LPL Financial, and Diageo.
• Morningstar Fair Value: A proprietary valuation metric used to assess stock attractiveness.
• Stock Ratings: 3-star (fairly valued), 4-star (undervalued), 5-star (deeply undervalued), 2-star (overvalued).
• Economic Moat: A company's sustainable competitive advantage.
• Uncertainty Rating: Morningstar's assessment of the predictability of a company's future performance.
• Market Valuation: The overall market trading at a slight discount to fair value.
• Investment Style Allocation: Overweighting value, market weighting core, underweighting growth.
• Market Capitalization Allocation: Overweighting small caps, slight underweight in large and mid-caps.
• Sector Allocation: Undervalued sectors include Communication Services, Real Estate, and Energy. Overvalued sectors include Utilities, Consumer Defensive (excluding Walmart/Costco), Financials, and Industrials (non-AI tied).
• Stock Picks: Coca-Cola (KO), Halliburton (HAL), Hershey (HSY).

Economic and Federal Reserve Outlook

Main Topics: Economic growth forecast, impact of government shutdown on Fed decisions, and interest rate expectations.

Key Points:

• Morningstar's Chief US Economist, Preston Caldwell, forecasts slowing economic growth sequentially until Q2 2026, with a base case of no recession and a slow reacceleration in the second half of 2025.
• The government shutdown is not expected to influence the Federal Reserve's interest rate decisions, as voting members' stances appear solidified.
• The CME Fed Funds Futures tool indicates a two-thirds probability of a Fed rate cut at the December meeting, a slightly higher probability than the previous week, reinforcing the base case for one more rate cut by year-end.

Earnings Reports and Company Analysis

Applied Materials (AMAT)

Main Topics: Upcoming earnings report, historical stock performance, and AI's impact.

Key Points:

• Applied Materials is the world's largest semiconductor wafer fab equipment manufacturer, with clients like Taiwan Semi, Intel, and Samsung, providing broad industry visibility.
• The stock sold off in August after earnings, despite meeting management guidance, due to a lowered forecast for an 8% sequential revenue decline in the current quarter.
• Morningstar's analyst considered the August sell-off overdone, and the stock has since surged into 2-star territory.
• Morningstar slightly increased its fair value estimate to account for investments in AI accelerator chips driving medium-term growth.
• Key focus for the upcoming earnings will be guidance and commentary on both AI products and traditional logic semiconductors to gauge global economic growth.

Palantir (PLTR)

Main Topics: Market reaction to earnings, Morningstar's fair value increase, and valuation concerns.

Key Points:

• Palantir's stock was down approximately 14% after reporting earnings, despite Morningstar raising its fair value estimate by about $20.
• The fair value increase was driven by updated guidance, leading to a revised 5-year revenue CAGR of 44% (up from 41%).
• Projections show topline revenue growing from $4.4 billion in 2025 to $17.7 billion by 2029, with earnings per share tripling from $0.72 to $2.43.
• The stock trades at approximately 250 times 2025 earnings estimates and 73 times 2029 earnings, indicating it is bumping against valuation limits.
• The market reaction is attributed to profit-taking and a "buyer strike" rather than fundamental concerns.
• Despite the fair value increase, Palantir stock remains significantly overvalued, trading at a 32% premium to fair value, placing it in 2-star territory.

AMD (AMD)

Main Topics: Earnings performance, guidance, AI deal impact, and upcoming analyst day.

Key Points:

• AMD reported strong third-quarter results with revenue up 20% sequentially and 36% year-over-year, exceeding guidance.
• Fourth-quarter revenue guidance of $9.6 billion projects 4% sequential growth and 25% year-over-year growth, also surpassing consensus expectations.
• The revenue from the OpenAI deal is believed to be already incorporated into the valuation.
• The market was reportedly disappointed by a lack of additional color on the timing of AI buildouts and future usage growth forecasts.
• Morningstar's fair value remains unchanged at $210 per share. The stock closed at $233, trading at a slight premium of over 10%, keeping it in 3-star range.
• Investors are advised to watch AMD's financial analyst day, where the company may reveal positive news that could impact its valuation.

Fortinet (FTNT)

Main Topics: Earnings results, business segment growth, and valuation attractiveness.

Key Points:

• Fortinet's stock was down about 5% after reporting earnings, but has shown signs of recovery.
• Sales increased by 14% and adjusted earnings per share by 17%.
• Morningstar's analysts are focused on the faster growth of specific business segments, such as secure access service edge (SASE) and security operations solutions, which contributed 37% of quarterly billings.
• These growth segments are outpacing the legacy business.
• Morningstar's fair value estimate of $18 per share places the stock in 4-star territory, trading at a 24% discount.
• Investors interested in cybersecurity are encouraged to read the detailed stock analyst note.

Sherwin Williams (SHW)

Main Topics: Impact of 401k match cut, earnings performance, and valuation.

Key Points:

• The company's decision to halt 401k contributions, a move last seen during the global financial crisis or pandemic, created confusion regarding the underlying business health.
• However, the earnings report indicated that the underlying business was "just fine," not showing the expected downside.
• The 401k cut was addressed in prepared remarks but without significant meaningful explanation.
• The stock initially popped after earnings, possibly due to short covering, but has since given back those gains and is trading near pre-earnings levels.
• Sherwin Williams remains at a 30% premium to Morningstar's long-term intrinsic valuation, classifying it as a 2-star rated stock.

Huntington Ingalls Industries (HII)

Main Topics: Earnings results, guidance increases, fair value adjustment, and investment strategy.

Key Points:

• Huntington Ingalls Industries (HII) reported a solid quarter with increased revenue and earnings.
• Management raised both revenue and free cash flow guidance.
• Morningstar increased its fair value estimate by 7% to $348 per share.
• Despite a significant rally (over 60% year-to-date), the stock is still at a slight discount to fair value, making it a 3-star rated stock.
• This stock serves as an example of layering into a position, starting with a partial position and adding on weakness, and potentially selling on strength to lock in gains.
• For investors who have held HII, now might be a good time to consider locking in some gains.

Zimmer Biomet (ZBH)

Main Topics: Guidance cut, investor confidence, long-term goals, and valuation.

Key Points:

• Zimmer Biomet's stock dropped 14% after management lowered revenue guidance, disappointing investors and necessitating a rebuilding of management credibility.
• The stated long-term goal of mid-single-digit topline growth appears more challenging after the guidance cut.
• Morningstar's model forecasts revenue growth averaging 3% from 2026-2029, which is 200 basis points below the company's long-term goal.
• Morningstar's fair value remains unchanged at $130 per share, with the stock trading at a 32% discount, placing it in 4-star territory.
• Upside potential lies in expected margin improvement as new products roll out, though this may take longer than initially anticipated.

LPL Financial (LPLA)

Main Topics: Earnings performance, strategy execution, and valuation.

Key Points:

• LPL Financial's stock is up about 10% since reporting earnings, with Morningstar's analyst noting the company's strategy remains on track.
• Morningstar maintained its fair value estimate at $504 per share.
• The stock is considered attractive, rated 4-star at a 26% discount.
• Excluding acquisition impacts, underlying results were strong, with the fee-based business benefiting from market tailwinds and income growth from cash sweep programs.
• The company is expected to continue exhibiting organic growth in assets under management, benefiting from a rising stock market and generating higher fee income.
• Acquisitions are also contributing to growth, and the investment thesis is playing out as expected.

Diageo (DEO)

Main Topics: Weaker than expected sales, reduced guidance, and valuation.

Key Points:

• Diageo reported weaker-than-expected sales, leading to a stock decline of around 3% since earnings.
• The company experienced flat topline revenue, with volume increases offset by a negative mix shift.
• Fiscal 2026 guidance was reduced, with expectations now for slight decline to flat organic revenue and low to mid-single-digit operating profit growth.
• Despite market disappointment, the stock is considered attractive from a long-term valuation perspective.
• Morningstar's fair value was lowered to $118 per share after incorporating updated guidance, but it remains a 4-star rated stock at a 23% discount.
• The stock offers a healthy dividend yield of 4.6%.

Deep Dive: FMC (FMC)

Main Topics: Company history, inventory destocking, patent expirations, dividend cut, guidance reduction, and Morningstar's outlook.

Key Points:

• Historical Performance: FMC was fairly valued at the start of 2023, coming off record post-pandemic years. Farmers and agricultural retailers stockpiled inventory due to supply chain fears.
• Inventory Destocking: As supply chain fears eased, inventory destocking significantly impacted FMC in 2023 and 2024, particularly in Brazil, FMC's largest market, where farmers had built up excess inventory.
• Patent Expirations: The patent for FMC's largest product category, diamides (an effective insecticide), specifically Rynaxypyr, expired in 2022, with manufacturing patent expiration in 2024. This has led to generic pressures and hurt profits. The patent for Cyazypyr, another major diamide product, expires in 2025, leading to further expected generic pressures. Diamides represented about 35% of revenue in the prior year.
• Dividend Cut and Guidance Reduction:
  • The stock tanked due to a dividend cut, driven by working capital buildup issues leading to negative free cash flow and rising debt levels. FMC needed covenant relief from banks.
  • Guidance was also cut due to the inability to quickly reduce manufacturing costs for diamides to match generic competitors. This has shifted diamides from highly profitable to less profitable products.
• Morningstar's Projections and Fair Value:
  • Morningstar's forecast shifted from expecting profit growth in 2026 to anticipating nearly a 20% profit decline next year due to the second diamide step-down.
  • Fair value was cut from $95 to $60 per share.
• Current Valuation and Outlook:
  • The stock is trading in the mid-teens, approximately 75% below Morningstar's fair value estimate, placing it in 5-star territory with significant upside potential.
  • Morningstar has raised its uncertainty rating from high to very high due to patent issues, debt levels, and a wider range of potential outcomes.
• Upside Catalysts:
  • Successful deployment and growth of new products, which are expected to eventually replace diamides.
  • Return to historical mid-20% operating margins as new products gain traction.
  • Long-term revenue growth projected at mid-single digits and EBITDA at mid-20% levels.
• Downside Risks:
  • Elevated debt levels.
  • Delays in new product introductions.
  • Faster-than-expected generic entry eroding market share and profitability.
  • Potential need for equity raise to pay down debt, which would be highly dilutive to shareholders.

Stock Market Outlook (November)

Main Topics: Market valuation, price-to-fair value metric, historical context, and macro dynamics.

Key Points:

• Market Valuation: As of October 31st, the market's price-to-fair value metric dropped to a slight discount, still within the "fair value" range.
• Valuation vs. Timing: The price-to-fair value tool is a good long-term valuation indicator but not a precise timing tool.
• Historical Context:
  • At the start of the year, stocks were fairly valued, and a market-weight recommendation was maintained due to a lack of macro catalysts.
  • In 2022, an underweight recommendation was made due to overvaluation and concerning macro factors (inflation, Fed tightening, rising rates, economic slowdown), which all materialized.
  • After the 2022 sell-off brought valuations back to fair value, a market-weight recommendation was made. Stocks overcorrected, leading to an overweight recommendation, and the market bottomed in October 2022.
  • This year, sell-offs were more driven by idiosyncratic issues (e.g., Silicon Valley Bank, Deepfake AI stock sell-off, tariffs) rather than macro factors.
  • An overweight recommendation was made in April after an overcorrection, and then moved back to market weight as the market recovered.
• Current Macro Dynamics: Macro dynamics are considered relatively balanced: the economy is slowing, the Fed is easing, inflation is slightly above target but expected to decline, and long-term interest rates are on a declining path.
• AI Stocks: Generally at fair value, with some becoming overvalued. Alphabet and Microsoft are still considered undervalued within the AI sector.
• Recommendation: The current market conditions maintain a market-weight recommendation.

Market Valuation Math Clarification

Main Topics: Discrepancy between market movement and Morningstar's valuation assessment.

Key Points:

• The market was slightly above Morningstar's fair value at the start of October.
• Stocks were up about 2% in October.
• In early November, the market is considered slightly undervalued relative to Morningstar's fair value.
• Explanation: Significant fair value increases in large mega-cap stocks (driven by AI partnerships, new revenue projections, and updated valuations like Nvidia's forecast) caused Morningstar's fair value to rise more than the broad market's price movement.
• The result is that Morningstar's fair value is now at a 2% discount to the market.

Investment Style and Market Capitalization Allocation

Main Topics: Allocation strategies based on Morningstar's valuations.

Key Points:

• By Style:
  • Overweight Value: This segment offers the best valuation for investors currently.
  • Market Weight Core.
  • Underweight Growth: While growth stocks saw significant fair value increases in October, the underweight is less pronounced than a few months prior.
• By Capitalization:
  • Overweight Small Caps: Based on valuation.
  • Slight Underweight in Large and Mid-Cap Stocks: To balance the overweight in small caps.

Sector Allocation

Main Topics: Undervalued and overvalued sectors based on valuation.

Key Points:

• Most Undervalued Sector:
  • Communication Services: Trading at a 15% discount, largely due to Alphabet (4-star rated, 16% discount), which significantly impacts the sector's market cap.
• Other Undervalued Sectors:
  • Real Estate: Still looks very undervalued at an 11% discount. Caution advised for urban office space, but value exists in defensive-oriented real estate.
  • Energy: Attractive at a 10% discount. Morningstar's long-term oil price forecast is $60/barrel WTI.
    • Pick: ConocoPhillips (COP) is a 4-star stock at a 20% discount with a 3.6% dividend yield. ExxonMobil (XOM) is now a 3-star stock.
• Overvalued Sectors:
  • Utilities: Trading at an 11% premium, broadly overvalued with few undervalued opportunities, which are typically story stocks with idiosyncratic risks. The market is overestimating long-term earnings growth from AI.
  • Consumer Defensive: Trading at a 7% premium.
    • Note: Walmart (WMT) and Costco (COST) are 1-star rated stocks trading at 70% and 45% premiums, respectively (40x and 50x earnings). Excluding these, the rest of the sector looks undervalued at an 11% discount, with many food names still undervalued.
  • Financials: Broadly overvalued at a 6% premium. The market is overestimating net interest income growth and underestimating loan losses among banks. Insurance companies are also valued too high, with growth expected to slow.
  • Industrials: Trading at a 6% premium. Companies tied to AI are performing well, but caution is advised for those not tied to AI buildout, given the expected deceleration in economic growth.

Stock Picks After Earnings

Coca-Cola (KO)

Main Topics: Defensive characteristics, valuation, dividend yield, and long-term growth thesis.

Key Points:

• Rating: Wide economic moat, low uncertainty, defensive characteristics.
• Valuation: Currently at a 5% discount to fair value, bordering between 4-star and 3-star. Historically rarely trades at a significant discount.
• Dividend Yield: 2.9%.
• Investment Thesis:
  • A good defensive play, expected to hold up well during market corrections, especially concerning AI stock valuations.
  • Slow and steady long-term growth expected, with a 5-year CAGR of 5% on the topline (2-3% volume growth, regular price increases).
  • Emerging markets are expected to bolster volume growth.
  • Focus on "better for you" offerings (e.g., beverages with protein and fiber) will pay dividends long-term.
  • Operating margins are expected to expand due to better operating leverage and higher-margin products, leading to a 9% earnings growth rate over the next 5 years.
• Notable Holder: Berkshire Hathaway owns 9.3% of the stock.
• Recommendation: Attractive, especially for investors looking to swap gains from AI stocks for more defensive picks.

Halliburton (HAL)

Main Topics: Energy sector positioning, momentum, dividend and buybacks, and valuation.

Key Points:

• Rating: High uncertainty (energy sector), narrow economic moat.
• Valuation: 11% discount to fair value, close to the 3-star/4-star border.
• Dividend Yield: 2.5%.
• Investment Thesis:
  • North America's largest oil field services company by market share.
  • Positive momentum, with the stock up 22% since its earnings release.
  • Combination of dividend and share buybacks provides an estimated 8% return to shareholders.
  • Considered a value stock in the energy sector, one of the few undervalued sectors.
  • Low expectations are baked into the valuation, providing opportunity if oil prices rise.
• Financial Projections:
  • Flat topline growth projected over the next 5 years.
  • Operating margins expected to normalize from 10.2% to 14.6% by 2029, still below the 3-year trailing average of 15.9%.
• Valuation Metric: Trades at 12 times earnings.

Hershey (HSY)

Main Topics: Cocoa price impact, non-chocolate business growth, new CEO's focus, and valuation.

Key Points:

• Rating: 4-star rated, 19% discount to fair value, wide economic moat, low uncertainty.
• Dividend Yield: 2.7%.
• Recent Performance: Stock bottomed in January, trended upwards, peaked in early October as cocoa prices fell, and has since bounced as cocoa prices recover.
• Investment Thesis:
  • The market is overly focused on short-term cocoa prices, which are a significant cost of goods sold.
  • Non-Chocolate Business: This segment (about 10% of revenue) is expected to grow and become more important.
    • Sugar confectionaries (e.g., gummies) show good short-term growth prospects.
    • Salty snacks are a key focus for the new CEO (formerly of Wendy's and PepsiCo's Frito-Lay division). Brands include Skinny Pop, Pirate Booty, and Dots Pretzels (potentially overtaking Snyder's as the #1 pretzel brand share).
    • Salty snacks are seen as a good complement to the chocolate business and are focused on less saturated, "better for you" categories.
  • Growth Projections: Non-chocolate snacks are projected to grow at 4-5% revenue, compared to 3% for chocolate.
  • Operational Efficiency: Completion of bringing brands under a single ERP program is expected to bolster efficiency and margins.
• Valuation: Considered an attractive price to buy more, with strong underlying fundamentals and long-term outlook.

Conclusion and Takeaways

The Morning Filter podcast episode provides a comprehensive overview of current market conditions, company earnings, and investment opportunities. Key takeaways include:

• Cautious Optimism on the Economy: While growth is slowing, a recession is not the base case, and the Fed is expected to cut rates.
• Earnings Analysis Highlights Nuance: Companies like Palantir and AMD show strong growth but face valuation challenges. Fortinet and LPL Financial are seen as executing well. FMC presents a significant turnaround story with high uncertainty but deep value.
• Market Valuation is Fair: The overall market is trading at a slight discount to fair value, supporting a market-weight allocation.
• Strategic Allocation is Key: Investors should consider overweighting value and small caps, while being mindful of the growth and large/mid-cap segments. Sector-wise, opportunities exist in Communication Services, Real Estate, and Energy, while Utilities and Financials appear overvalued.
• Defensive and Value Picks: Coca-Cola, Halliburton, and Hershey are presented as attractive stock picks, offering a blend of defensive qualities, value, and growth potential, with specific attention to their underlying business drivers and valuations.
• Long-Term Perspective: The discussion emphasizes the importance of understanding a company's long-term strategy, competitive advantages, and valuation relative to its intrinsic worth, rather than solely focusing on short-term market noise.