3 Stocks to Buy Before Their Discounts Disappear Again I April 27, 2026

Key Concepts

• Barbell Strategy: An investment approach balancing high-quality value stocks (for stability/volatility protection) with undervalued growth/AI stocks (for upside potential).
• Economic Moat: A company's ability to maintain competitive advantages over its rivals to protect long-term profits.
• Hyperscalers: Large cloud providers (Alphabet, Amazon, Meta, Microsoft) driving the AI buildout through massive capital expenditure (capex).
• GLP-1 Drugs: A class of medications (e.g., for diabetes/weight loss) significantly impacting the pharmaceutical sector and consumer spending habits.
• Fair Value Estimate: Morningstar’s assessment of a stock's intrinsic value, used to determine if a stock is undervalued (4-5 stars) or overvalued.
• Operating Margin Expansion: The process of increasing profitability by improving efficiency or reducing costs.

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Market Strategy and Outlook

Dave Sekera, Chief US Market Strategist at Morningstar, notes that the "easy returns" in the market are likely behind us as valuations have normalized.

• The Barbell Strategy: Recommended earlier in 2026, this strategy involved holding high-quality value stocks (like energy) and growth/AI stocks. As value stocks rallied in Q1 and growth stocks lagged, the strategy successfully allowed for profit-taking in value and reinvestment into discounted tech/AI names.
• Current Stance: Sekera advises letting the current growth/AI momentum run until valuations reach "three-star" territory before rebalancing back into lagging value sectors.

Economic Indicators and Fed Policy

• Federal Reserve: Sekera expects the upcoming Fed meeting to be a "non-event" with no changes to monetary policy.
• Economic Data: He warns against over-extrapolating from short-term GDP and inflation reports. He highlights that the current economic environment is heavily skewed by the $700 billion AI capex boom, making traditional forecasting difficult.

Earnings Analysis and Sector Insights

• Big Tech (Alphabet, Amazon, Meta, Microsoft): Expectations are for strong results, but guidance remains conservative. The primary risk is a potential slowdown in the AI buildout due to shortages in construction equipment for data centers.
• Apple: Focus is on the upcoming CEO transition and the June 8th Worldwide Developer Conference. Analysts are watching for integration strategies with Google’s AI models and potential margin pressure from semiconductor memory prices.
• Eli Lilly: The focus is on international expansion of GLP-1 drugs, margin expansion, and the development of oral (pill) versions of their treatments to compete with Novo Nordisk.
• S&P Global: Despite concerns regarding AI disruption to rating agencies, Sekera sees no fundamental threat and views the stock as a solid performer.
• UPS: Monitoring the impact of high fuel prices on margins and consumer demand, particularly in small/medium business segments.
• Food/Consumer Goods (Mondelez, Hershey): These companies face margin pressure due to inflation and rising raw material costs (wheat, corn, soy). The thesis is that they will eventually regain margins as pricing power catches up to costs.

Notable Research Findings

• Intel: Morningstar doubled its fair value to $60 following a 650-basis-point expansion in operating margins. However, Sekera warns the stock is expensive (trading at 71x 2026 earnings), requiring investors to fully believe in the long-term AI growth story.
• Service Now: Despite a stock price drop due to "subpar messaging" from management, Morningstar maintains a $165 fair value. It is considered a five-star stock with significant upside potential if management clarifies their AI monetization strategy at the May 4th Investor Day.
• Tesla: The stock remains a "buy and manage" position rather than "buy and hold." Sekera emphasizes the volatility of the stock and suggests using it to harvest profits when it rallies and adding to positions when it dips.

"Second Chance" Stock Picks

Sekera identified three stocks that previously performed well, pulled back, and are now back in a buying range:

1. Ingredion (INGR): Rated 4 stars. Benefits from the shift toward health-focused food ingredients. Trades at a low 6.6x EV/EBITDA, making it a potential value play.
2. Charles Schwab (SCHW): Rated 4 stars. The market is overreacting to fears of AI-driven competition in cash management. Morningstar sees strong fundamental growth (13% earnings growth) and views the recent 11% post-earnings selloff as an entry point.
3. Mosaic (MOS): Rated 4 stars. A play on the fertilizer commodity cycle. Despite high uncertainty and no economic moat, the stock offers a large margin of safety and benefits from geopolitical supply disruptions in the Middle East and export cuts from China.

Synthesis

The market is currently driven by the massive capital investment in AI infrastructure. While growth stocks have surged, investors should remain disciplined by using a "barbell" approach—harvesting gains from overextended tech names and rotating into high-quality, undervalued companies (like Schwab or Ingredion) that have been unfairly punished by broader market sentiment. Sekera emphasizes that for volatile or high-uncertainty stocks, investors should maintain "dry powder" to dollar-cost average during pullbacks.