3 Stocks to Buy and 3 Stocks to Sell for July I June 29, 2026

Key Concepts

• Fair Value Estimate: Morningstar’s internal assessment of a stock's intrinsic value based on long-term cash flow projections.
• Economic Moat: A company's ability to maintain competitive advantages (Wide, Narrow, or None).
• PCE (Personal Consumption Expenditures): A measure of inflation tracking price changes in consumer goods and services.
• Hyperscalers: Large cloud infrastructure providers (e.g., Google, Microsoft) that are currently investing heavily in AI hardware.
• Discounted Cash Flow (DCF) Model: A valuation method used to estimate the value of an investment based on its expected future cash flows.
• Operating Margin: A measure of profitability representing the percentage of revenue remaining after paying for variable costs of production.

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1. Market Overview and Tech Sector Performance

The technology sector experienced a pullback of over 5% last week, driven by profit-taking after significant year-to-date gains (the sector remains up 15.25% YTD). Key detractors included major AI-linked stocks:

• Nvidia: Down ~9%.
• Broadcom: Down 11%.
• Oracle/Western Digital: Down ~20% each.
• SpaceX: Down 17% following its IPO, which Dave Sakara noted as a source of "speculative indigestion."

Valuation Perspective: Tech stocks are currently trading at a 13% discount to Morningstar’s fair value, compared to a 23% discount in March. Notable discounts include Broadcom (44%), Microsoft (38%), and Nvidia (30%).

2. Macroeconomic Indicators: Oil and Inflation

• Oil Prices: WTI is trading at approximately $70/barrel. While the Iranian conflict has cooled, the situation remains volatile. Morningstar maintains a long-term mid-cycle forecast of $60/barrel for WTI and $65 for Brent.
• Inflation: Headline PCE rose to 4.1% (up from 3.8%), while Core PCE reached 3.4%. High oil prices continue to weigh on lower-income households, and it will take time for wage inflation to catch up to headline inflation.
• Fed Policy: The market is pricing in a 30% probability of a rate hike in July and a 77% probability of at least one hike by December. The 2-year US Treasury yield has climbed above 4%, its highest level since early 2025.

3. Company-Specific Analysis

Nike (5-Star Rating)

• Status: Trading at a >50% discount to fair value with a 4% dividend yield.
• Challenges: Top-line contraction since 2023, tariff impacts, and loss of market share to competitors like "On Running."
• Outlook: While undervalued, Sakara advises caution until the company shows signs of "righting the ship."

Constellation Brands (4-Star Rating)

• Status: Fair value estimate reduced from $220 to $170.
• Challenges: Declining alcohol consumption in the US and stagnant volume growth. The company cut its fiscal 2027 guidance and withdrew 2028 guidance.

Micron (2-Star Rating)

• Status: Revenue up 350% YoY; gross margins expanded to 85%.
• Outlook: While growth is currently explosive, Morningstar expects new capacity to come online by 2028, which will pressure pricing and margins.

Adobe (Value Opportunity vs. Trap)

• Status: Down 70% from all-time highs.
• Challenges: Leadership transition (CEO and CFO both departing) and market fears regarding AI disruption.
• Thesis: If Adobe successfully integrates AI to add value, it is significantly undervalued. If AI displaces their core products, it is a value trap.

Lululemon (4-Star Rating)

• Status: Mixed earnings; 3% decline in the Americas offset by 30% growth in China.
• Leadership: The market is skeptical of the new CEO, who comes from a "competitive/athlete-focused" background at Nike, which contrasts with Lululemon’s "lifestyle/wellness" brand identity.

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4. July Stock Picks

| Stock | Rating | Thesis | | :--- | :--- | :--- | | Alphabet | 4-Star | Integrated AI stack (TPUs, Cloud, Gemini); 20% projected earnings CAGR. | | Palantir | 4-Star | High growth (45% revenue CAGR projected); requires high risk appetite. | | Salesforce | 5-Star | Strong fundamentals; 11.4x earnings estimate; "Agent Force" AI growth. | | Applied Materials | 2-Star | SELL: Run up 240% in 52 weeks; trading at a 33% premium. | | Teradyne | 1-Star | SELL: Up 384% in 52 weeks; trading at a 60% premium. | | American Airlines | N/A | SELL: No economic moat; trading at an 80% premium to fair value. |

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5. Synthesis and Conclusion

The market is currently navigating a transition period where "AI hype" is being balanced against fundamental valuation. Dave Sakara emphasizes that investors should focus on companies with "wide economic moats" that can survive AI disruption. While tech stocks have pulled back, they are becoming more attractive, but investors should avoid "over-leveraged" stocks that have run up too far, such as Applied Materials and Teradyne. The overarching strategy remains: build partial positions in high-conviction, undervalued names and maintain "dry powder" for dollar-cost averaging.