3 Stocks to Sell and 3 Stocks to Buy in November I November 3, 2025

Key Concepts

• Federal Reserve (Fed) Interest Rate Policy: Discussions around the Fed's recent 25 basis point rate cut and market expectations for future cuts, particularly in December.
• Nvidia and AI Dominance: Nvidia's market cap surpassing $5 trillion, driven by the AI boom, and its projected revenue and earnings growth.
• AI Stock Valuations: Concerns about AI-related stocks being fairly valued or overvalued, with potential downside if growth projections are not met.
• US-China Trade Relations: Developments in trade negotiations, including agreements on fentanyl precursors, tariffs, rare earth elements, and agricultural exports.
• Tech Earnings Season: Analysis of earnings reports from major tech companies like Microsoft, Alphabet, Meta Platforms, Amazon, Apple, and Fortinet, with a focus on AI-related spending and future outlook.
• Company Valuations and Ratings: Morningstar's fair value estimates, star ratings (2-star: overvalued, 3-star: fairly valued, 4-star: undervalued, 5-star: deeply undervalued), and economic moat assessments for various companies.
• AI Infrastructure and Spending: The massive investment in AI infrastructure, exemplified by Meta's Hyperion data center, and its implications for various industries.
• Consumer Staples Sector: Analysis of the dynamics between consumer packaged goods (CPG) manufacturers and retailers, and factors influencing their stock performance.
• Stock Recommendations (Buys and Sells): Specific stock picks for buying and selling, with detailed rationales based on valuation, company fundamentals, and market trends.
• Real Estate Investment Trusts (REITs): Discussion on the real estate sector, particularly diversified healthcare REITs like Ventas, and the impact of interest rates.

Morning Filter Podcast Summary

This episode of the Morning Filter podcast, hosted by Susan Javinsky of Morningstar and Dave Sakara, Morningstar's Chief US Market Strategist, covers key market events, company earnings, and stock recommendations.

Federal Reserve Meeting and December Outlook

The Federal Reserve implemented a 25 basis point interest rate cut as expected. For the December meeting, market probabilities for another 25 basis point cut have decreased to around 70% from over 90% prior to the last meeting. Fed Chair Powell indicated that a December cut is not a certainty, which the market interpreted as slightly more hawkish than anticipated. However, Sakara believes there's no fundamental change in the outlook for the December meeting compared to the October meeting.

Nvidia's Milestone and AI Growth Projections

Nvidia's market capitalization exceeded $5 trillion, highlighting the continued dominance of the AI trade. This milestone signifies the market's expectation of substantial long-term growth from artificial intelligence. Nvidia is currently considered to have the leading GPUs for AI training and is expected to maintain its first-mover advantage through capital expenditures in chip design.

• Revenue Projections:
  • Fiscal 2023: $27 billion
  • Fiscal 2024: Doubled from 2023
  • Fiscal 2025: Doubled from 2024
  • Fiscal 2026: Projected $208 billion
  • 2030: Projected $525 billion
• Earnings Per Share (EPS) Projections:
  • 2023: $0.33
  • 2024: Projected $4.50
  • 2030: Projected $12.75

The market is pricing in significant growth for Nvidia and other AI-related companies. However, many of these stocks are now considered fairly valued or overvalued. If AI growth fails to meet these high expectations, a significant downside is possible. Conversely, there's potential for even greater upside if AI development exceeds current projections. Nvidia's CEO has stated an expectation of a $3-4 trillion infrastructure opportunity over the next five years, with Nvidia historically capturing about a third of AI infrastructure spending, potentially leading to $1 trillion in sales by 2030, which is more than double Morningstar's current forecast.

US-China Trade Relations Update

Following President Trump's meeting with China's President Xi, there appears to be a more positive path forward in US-China trade relations. The White House released a fact sheet detailing agreements, including commitments to halt fentanyl precursor flow in exchange for reduced US tariffs and extended tariff suspensions. China will also eliminate controls on rare earth elements, and there are agreements regarding semiconductor restrictions and tariffs. China is set to reopen its market to US soybeans and other agricultural exports. However, the fact sheet lacks significant detail, and many US tariffs are extended to November 2026, indicating ongoing negotiations.

Tech Earnings and Company Analysis

AMD:

• Focus: Management commentary on the timing of AI buildouts and forecasts for future AI usage growth.
• Valuation: Stock is up nearly 60% last month. Morningstar increased its fair value estimate to $210 per share (from $155) following the OpenAI deal. The stock is trading at a 20% premium, placing it in the top end of the 3-star territory, nearing 2-star.
• Analyst View: AMD is expected to be the number two player behind Nvidia.

Qualcomm (QCOM):

• Focus: Details on technological aspects of their AI chips and their ability to compete in the market.
• Valuation: Morningstar increased its fair value estimate to $185 per share (from $170) by incorporating $2 billion in new AI revenue by 2027. The stock is trading at fair value, rated 3-star.
• Analyst View: Qualcomm needs to prove its products are competitive against established AI alternatives to gain market share.

Fortinet (FTNT):

• Focus: Management commentary on hardware and networking cybersecurity sales, and any factors supporting or challenging the long-term view, particularly regarding Secure Access Service Edge (SASE) and Security Operations growth.
• Valuation: Stock has been trading in a range, but was hit hard after last quarter's earnings. Morningstar's base case projects a 5-year compound annual growth rate (CAGR) of over 13% and an earnings growth rate of almost 16%. The stock trades at approximately 26 times 2026 earnings, rated 4-star at a 20% discount.
• Analyst View: The previous sell-off was considered overdone. Disappointment in SASE and Security Operations growth could lead to further downside, while strong performance could support current projections.

Microsoft (MSFT):

• Earnings: Solid results, with revenue and earnings at the high end of guidance. Azure growth accelerated to 39% (surpassing guidance of 37%).
• Capex: The company boosted its forecast for 2026 capex spending, which led to a share pullback.
• Valuation: Morningstar maintained its fair value estimate. The stock is rated 4-star, trading at a 14% discount.
• Analyst View: Results are consistent with the long-term thesis. It remains one of the few undervalued mega-cap stocks and an AI play.

Alphabet (GOOGL):

• Earnings: Substantially better than expected.
• Fair Value Increase: Morningstar increased its fair value estimate by 13% to $340 per share (from $300).
• Rationale: The primary driver was the significant growth in Google Cloud's backlog, up 79% (from 37% last quarter), indicating strong future cloud demand. Google Cloud's 5-year forecast growth was increased to 34% (from 30%).
• Valuation: The stock is rated 4-star, trading at a 17% discount to fair value. It's considered one of the few undervalued mega-cap stocks and an AI play.

Meta Platforms (META):

• Earnings: Strong results, but the market reacted negatively to a planned $100 billion capex spending for next year.
• Capex Context: This $100 billion represents about 43% of projected 2026 revenue ($234 billion).
• Analyst Concerns: Meta lacks its own cloud division to directly monetize AI capex spending, unlike Amazon, Microsoft, or Alphabet. Investors are concerned about Meta's AI strategy and its history of unmonetized spending (e.g., the metaverse).
• Valuation: The stock fell enough to be rated 4-star (from 3-star), trading at a 24% discount to fair value.
• Analyst View: While investing in foundational AI models is strategically important due to the cost of using third-party models at scale, the market remains concerned about Meta's ability to monetize this massive spending. Sakara personally prefers Microsoft and Alphabet due to current uncertainties with Meta's AI monetization path.
• Hyperion Data Center: A significant AI infrastructure project by Meta in Louisiana, requiring 5 GW of computing power and substantial resources for construction.

Amazon (AMZN):

• Earnings: Topline exceeded guidance, primarily driven by AWS. Operating margins and earnings were slightly weaker than expected due to one-off charges (FTC settlement, severance).
• Adjusted Margins: Excluding charges, operating margin was 12%, better than the previous year.
• Guidance: Slightly better than anticipated for revenue and profitability.
• Fair Value Increase: Morningstar bumped up its fair value estimate to $260 (from $245).
• Valuation: The stock is rated 3-star, at about a 6% discount to its increased fair value.
• Retail Division: Consumer buying patterns remain unchanged, which bodes well for their online platform.

Apple (AAPL):

• Earnings: iPhone sales exceeded expectations, and profitability was better than projected. Services are also performing well.
• Fair Value Increase: Morningstar raised its fair value estimate to $240 per share (from $210) based on better-than-expected performance and increased guidance.
• Valuation: The stock is now closer to the 3-star range, trading at a 13% premium, still in the 2-star territory.

ServiceNow (NOW):

• Earnings: Results exceeded the high end of guidance on key measures.
• AI Impact: Generative AI is a key driver for the company's growth story. ServiceNow is on track to achieve $500 million in annual contract value (ACV) from AI by year-end and aims for $1 billion in ACV by 2026.
• Valuation: The stock has run up significantly. It is currently rated 3-star, at a 13% discount, close to 4-star territory.
• Analyst View: The stock would become more attractive with a further retreat.

UPS:

• Earnings: The market reacted positively, signaling a potential bottoming out and the start of a long-term recovery.
• Fair Value: Morningstar is maintaining its fair value of $113 per share.
• Challenges: The company has been adjusting its cost base in the US and losing its Amazon delivery business.
• Dividend: The dividend was held steady, but analysts note it might be at risk next year.
• Valuation: The stock is rated 4-star, trading at a 15% discount.
• Analyst View: The company has a wide economic moat, making it attractive.

Perrigo (FI):

• Earnings: Third-quarter earnings were weak, and management provided a very weak outlook, leading to a 44% stock price drop.
• New CEO Strategy: The new CEO believes the company's previous focus on maximizing short-term growth and margins was unsustainable. The company will need to increase reinvestment, which will reduce margins and expected growth.
• Fair Value Cut: Morningstar is cutting its fair value estimate by 35%.
• Analyst View: This situation was highlighted as a "bold stock situation" with a differentiated view from the market, but the outlook has significantly deteriorated.

Consumer Staples Sector Dynamics

In response to a viewer question about consumer staples, Aaron Lash, Morningstar's Sector Director for Consumer Equity Analysts, provided insights:

• Retailer-Manufacturer Relationship: There is no fundamental shift in power; it's an interdependent relationship. CPG manufacturers need to be stocked, and retailers rely on them for traffic.
• CPG Stock Performance: CPG shares are capped due to concerns about an intensifying promotional environment and manufacturers potentially sacrificing long-term health for short-term market share.
• Retailer Performance: Retailers are benefiting from private label lineups and technology enhancements, including AI. However, expectations for retailers like Walmart and Costco are considered rich.
• Future Outlook for CPGs: For packaged food firms to appreciate, the market needs to see sequential improvement in volumes without sacrificing price or long-term investments in R&D and marketing.

Stock Recommendations: Sells

Citigroup (C):

• Rationale: The stock has moved from a deep value pick to a 2-star rated stock, trading at a 23% premium to its total capital levels. US banks are generally overvalued.
• Economic Moat: Citigroup has no economic moat, unlike JP Morgan, Bank of America, and Wells Fargo, which have wide moats.
• Outlook: Expected to sell off further and faster than other mega banks during a market correction.

Progressive (PGR):

• Rationale: This is viewed as a sector call on insurance companies, which are generally overvalued. While insurers have achieved high premium increases, the market has overextrapolated future growth.
• Valuation: The stock is still rated 2-star despite a 14% decline since earnings. It was one of the more overvalued stocks in the insurance sector earlier this year.

eBay (EBAY):

• Rationale: Even after a 16% decline post-earnings, the stock trades at a 30% premium and remains 2-star rated. The market has priced in too much growth for too long.
• Growth Expectations: Morningstar's model projects a 5-year CAGR of almost 7% for topline growth (which has been flat since 2021) and a 9.5% EPS CAGR. Even with these assumptions, the stock is considered too expensive.

Stock Recommendations: Buys

Alphabet (GOOGL):

• Synopsis: A 4-star rated stock trading at a 17% discount with a wide economic moat and medium uncertainty.
• Rationale: The stock is on an upward trend, and fair value estimates are also rising. The market is more comfortable that search will not be entirely replaced by AI, and Google is using AI to enhance search engagement and ad revenue.

Salesforce (CRM):

• Synopsis: A 4-star rated stock at a 20% discount to fair value, with high uncertainty (common for tech stocks) and a wide economic moat based on switching costs and network effects.
• Rationale: The stock has been under downward pressure due to uncertainty around AI adoption. However, recent investor day presentations focused on AI plans (Agent Force, Einstein 360) and new long-term financial targets ($60 billion revenue in 2030, Rule of 50 framework). Incorporating these targets could increase fair value by 8%. The stock is considered undervalued if the company can achieve these targets, with potential upside from sustained revenue acceleration and margin improvements.

Ventas (VTR):

• Synopsis: A 4-star rated stock at a 9% discount with a 2.6% dividend yield. It's a diversified healthcare REIT with a portfolio of nearly 1,400 properties, primarily in senior housing, but also including medical office buildings, hospitals, life sciences, and skilled nursing facilities.
• Rationale: Real estate, particularly defensive-oriented sectors like healthcare, is favored. Ventas was a previous recommendation and is up 45% since July 1, 2024 (excluding dividends).
• Tailwinds: The sector benefits from declining interest rates, which will help refinance debt and boost earnings.
• Recent Performance: Earnings were better than expected, driven by strong growth in senior housing. The company acquired $1 billion in senior housing properties at a 7.1% cap rate, expected to be value-accretive. Management boosted guidance.
• Outlook: Good momentum, still undervalued, with tailwinds from declining interest rates and the aging baby boomer generation supporting senior housing.

The podcast concludes with a reminder for viewers to visit morningstar.com for more information and to subscribe to the show.