6 Stocks to Sell Before the End of the Year I November 24, 2025

Key Concepts

• Federal Reserve (Fed) Rate Decisions: Discussions around the Fed's potential interest rate cuts in December and January, influenced by economic data and inflation.
• Economic Indicators: Analysis of weekly jobless claims, non-farm payrolls, and GDP growth, with a focus on their reliability and impact on monetary policy.
• Consumer Spending: Insights into the American consumer's behavior, with mixed signals from retailers like Walmart, Target, TJ Maxx, and Home Depot.
• Artificial Intelligence (AI): The significant growth in AI, particularly in hardware and data center buildouts, and concerns about future use cases and return on investment.
• Nvidia (NVDA): Detailed analysis of Nvidia's strong earnings, revenue acceleration, and future product plans, alongside market reactions and valuation.
• Walmart (WMT): Review of Walmart's earnings report, e-commerce growth, and margin expansion, with a discussion on its valuation.
• Palo Alto Networks (PANW): Assessment of Palo Alto Networks' earnings, revenue growth, and cybersecurity industry consolidation, and its stock performance.
• Depreciation Schedules and Accounting: An in-depth explanation of how depreciation schedules for AI hardware might affect reported earnings and Morningstar's valuation methodology.
• Lithium Market: Outlook on lithium prices, demand drivers (EVs, data centers), and the performance of Albemarle (ALB).
• Meat Producer Industry: Analysis of the chicken, pork, and beef markets, and their impact on Tyson Foods (TSN).
• Intuitive Surgical (ISRG): Discussion on Intuitive Surgical's growth, wide economic moat, and valuation, particularly concerning its use in lower-complexity procedures.
• Data Center REITs: Comparison of established players like Equinix (EQIX) and emerging players in the data center industry, considering factors like power, zoning, and experienced operators.
• Berkshire Hathaway (BRK.B): Evaluation of Berkshire Hathaway's valuation, considering its insurance business and other holdings, and its current star rating.
• Morningstar Uncertainty Rating: Explanation of the uncertainty rating, its impact on star ratings, and the importance of a margin of safety for high uncertainty stocks.
• MAG Seven Stocks: Analysis of the current valuation of Alphabet, Microsoft, Amazon, Meta, Nvidia, Apple, and Netflix, and the risks associated with concentrated AI-related investments.
• "Taking Profits": Strategies and considerations for selling positions, including tax implications and personal investment strategies.
• Holding Period for Investments: Guidance on when to sell stocks, considering market noise, fair value, and investment thesis.
• Stocks to Sell: Identification of tax-loss sale candidates (Wingstop, Church and Dwight) and overvalued stocks with negative momentum (Roblox, Netflix, Citigroup, Coinbase).

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Economic Outlook and Fed Policy

Dave Sakiraa, Morningstar's Chief US Market Strategist, discusses the economic signals following the government shutdown and their potential impact on the Federal Reserve's rate decisions.

• Fed Rate Forecast: Morningstar's Chief US Economist now expects the Fed to skip rate cuts in December but anticipates a downward trend in payrolls will force a resumption of rate cuts in January.
  • December Meeting: December 9th and 10th, decision on the 10th.
  • January Meeting: January 27th and 28th.
• Economic Data Reliability: Sakiraa expresses skepticism about the reliability of weekly initial jobless claims, considering them "more noise than anything else." He also notes that the September non-farm payrolls report is likely unreliable due to the government shutdown and restatements, and the data is already old. The absence of the October report further hinders trend analysis.
• September Non-Farm Payrolls: Reported at 119,000, significantly higher than the consensus estimate of 53,000. However, revisions subtracted over 33,000 from payrolls for the preceding two months. Unemployment edged up to 4.4%, attributed to an increase in the labor force. Despite the strong September reading, Sakiraa believes labor demand remains weak, though not collapsing, when compared to a normalized economic environment.
• GDP Growth: The economic environment is described as difficult to gauge, with a stark contrast between the AI buildout boom and stagnant other sectors.
  • Atlanta Fed GDP Nowcast: Currently at 4.2%.
  • Consensus GDP Estimate: 2.7%.
  • Morningstar US Economist Estimate: 2.2% for the current quarter, with expectations of slowing GDP growth to 1.5% in Q4, further slowing in Q1, and bottoming out at 1% in Q2 of next year.
• Inflation Concerns: The October 2025 PCE report, scheduled for December 3rd, is highlighted as a key indicator. Higher-than-expected inflation could dampen rate cut expectations, while in-line or better results would be a "go-ahead signal."

Retailer Earnings and Consumer Sentiment

The upcoming week features several retailer earnings reports, providing insights into consumer behavior amidst economic uncertainty.

• Mixed Consumer Signals: While the American consumer's willingness to spend is generally not underestimated, gaining insight into individual household balance sheets and spending habits is challenging.
  • Walmart: Reported solid back-to-school and Halloween sales, expecting strong holiday sales.
  • Target: Indicated consumer sentiment is at its worst levels in three years.
  • TJ Maxx: Noted a strong start to Q4 and high confidence for the holiday season.
  • Home Depot: Cited ongoing consumer uncertainty and housing market pressure dampening demand.
  • Lowe's: Observed healthy yet cautious homeowners.
• Upcoming Reports: Best Buy, Dick's Sporting Goods, and Kohl's are scheduled to report, offering further insights into consumer expectations for the holidays.

Morningstar Research and Stock Analysis

Nvidia (NVDA)

Nvidia's recent earnings report showcased continued exceptional growth driven by AI demand.

• Stunning Earnings: Revenue increased by 22% sequentially and 62% year-over-year. The forecast for the January quarter projects a 65% year-over-year revenue increase.
• Revenue Acceleration: The company is experiencing revenue acceleration at an accelerating rate.
• Product Sales Forecast: Nvidia expects to sell $500 billion worth of Blackwell and Rubin products through the end of calendar year 2026.
  • Data Center Revenue Implication: This implies $300 billion in data center revenue in calendar 2026, compared to $200 billion on an annualized basis from the previous quarter.
• LQA (Last Quarter Annualized): A metric used to gauge the run rate of accelerating revenue, noted as a metric not commonly used since the late 1990s.
• Gross Margins: High demand and limited supply for AI products are bolstering gross margins, with expectations to increase to 75% in the January quarter.
• Market Sell-off Post-Earnings: Despite strong results, the stock sold off, attributed to potential concerns about the long-term use cases for AI once significant data center capacity is built. The massive capital expenditure required for AI buildout needs to be justified by economic value generated through enhanced products, new use cases, and increased efficiency.
  • Cumulative Revenue (FY2024-2028): Estimated at $1.1 trillion.
  • Nvidia's Share of Capex: Estimated at one-third, implying $3 trillion in capex that companies need to earn a return on.
• Morningstar Valuation:
  • Fair Value Estimate: Increased to $240 per share (from $225).
  • Star Rating: Now a four-star rated stock, trading at a 25% discount.
  • Uncertainty Rating: High, indicating potential for significant volatility.

Walmart (WMT)

Walmart's earnings report exceeded expectations, leading to a boost in its forecast.

• Key Takeaways: Total revenue growth of nearly 6%, with e-commerce sales up 17%. Margin expansion was observed at both the top line and overall company level.
• Morningstar Valuation:
  • Fair Value Estimate: Increased to $60 per share, based on raising same-store sales to 4.8% (from 4.2%).
  • Star Rating: Remains a one-star stock, trading at over a 70% premium to fair value.
  • Valuation Discrepancy: The market is pricing in approximately 40 times earnings. Morningstar's model would require operating margins to reach new all-time highs, which they do not foresee.

Palo Alto Networks (PANW)

Palo Alto Networks reported a strong quarter, though the stock experienced a pullback.

• Quarterly Performance: Sales up 16%, with adjusted operating margins expanding by 140 basis points.
• Morningstar Valuation:
  • Fair Value Estimate: Increased to $225 (from $210) based on higher near-term sales expectations and profitability.
  • 5-Year CAGR (Revenue): 13%.
  • 5-Year CAGR (Earnings): 27%, with additional operating margin expansion.
  • Investment Thesis: The long-term investment thesis remains intact, expecting ongoing consolidation in the cybersecurity industry with Palo Alto Networks as a consolidator.
  • Stock Performance: The stock sold off 7% after earnings, with the analyst unsure of the exact reason, possibly due to execution risk on recent acquisitions or a broader cybersecurity stock sell-off.
  • Current Valuation: Trading at an 18% discount to fair value, a three-star rated stock, close to becoming a four-star stock.

Audience Mailbag: AI and Accounting Practices

Questions from viewers Greg and Patrick address concerns about AI and tech companies potentially overstating earnings through aggressive accounting for AI hardware depreciation.

• Michael Burry's Commentary: The genesis of the question is attributed to Michael Burry, who suggests hyperscalers are lengthening the estimated life of AI chips to decrease depreciation and inflate short-term earnings, thereby boosting stock prices.
• Morningstar's Perspective:
  • Analyst Estimates: Morningstar's analysts covering Nvidia, Taiwan Semiconductor, and hyperscalers have good estimates for failure rates and average AI semiconductor life based on years of experience and engineering analysis.
  • Product Life Cycle and Cascading Workload Strategy: Even older AI chips retain value and can be utilized for less demanding tasks. Google's 7-year-old TPUs are still 100% utilized. The expected strategy involves using chips for training in the first 1-2 years, inference in years 3-5, and offline/batch processing from year 6 onwards.
  • Impact on Valuation: Changes in depreciation schedules are expected to have minimal to no impact on Morningstar's valuation. Their intrinsic value calculation is based on the present value of future free cash flow (DCF model). Depreciation is a non-cash expense. Lengthening depreciation would increase short-term taxes, which would decrease valuation, but not meaningfully.
  • Conclusion: Morningstar's valuations are not swayed by depreciation schedule changes, and they do not believe these changes are being made to manipulate earnings.

Lithium Market and Albemarle (ALB)

A question from Sar regarding the outlook for lithium and Albemarle.

• Lithium Price Forecast: Seth, who covers the sector for Morningstar, expects lithium prices to increase in 2026.
  • Demand Drivers: Rising EV sales and the buildout of large-scale utility batteries for data centers are expected to outpace projected supply increases in 2025.
  • Supply/Demand Balance: This should bring the supply-demand curve into balance, moving away from the oversupplied market of 2025.
  • Long-Term Price Forecast: $20,000 per metric ton, double current spot rates (around $10,000, up from $8,000 in July).
• Albemarle (ALB):
  • Morningstar Coverage: Albemarle is a covered stock with a narrow economic moat based on cost advantages.
  • Star Rating: Four-star rated stock at a 42% discount.
  • Performance: The stock has recovered significantly from mid-year lows but remains well below its January 2023 peak.

Meat Producer Industry and Tyson Foods (TSN)

Jim inquires about the meat producer industry and specific stocks like JBS, Smithfield Foods (SFD), and Tyson Foods (TSN).

• Morningstar Coverage: Morningstar only covers Tyson Foods, assigning it no moat and a five-star rating.
• Industry Tailwinds: The broader US packaged food sector, including proteins, is experiencing tailwinds. Meat remains appealing for health-conscious individuals (GLP-1 users) and budget-conscious consumers cooking at home.
• Protein Market Cycles:
  • Chicken: At the top of the cycle, benefiting from taste trends, QSR popularity, and relative value due to higher prices of other proteins. Favorable input costs and lack of disease outbreaks are pushing margins to peak levels.
  • Pork: Recovering strongly, in the middle of the cycle. Hog supply availability has improved, and demand remains strong, leading to recovering pork operator margins.
  • Beef: Facing its most challenging situation in decades, at the bottom of the cycle. Cattle supply is extremely tight due to shrinking herd size (lowest since the 1950s) caused by drought conditions. Record-breaking prices are being seen, but improving pasture conditions and high prices should incentivize a herd rebuild, though this is in its very early stages.
• Tyson Foods (TSN):
  • Segment Performance: All segments are doing well except for beef, which is Tyson's largest segment by revenue. Beef continues to generate massive operating losses due to high cattle prices.
  • Outlook: As herd size grows and supply improves, beef margins are expected to recover to historical norms.

Company-Specific Questions

Intuitive Surgical (ISRG)

Kathy asks about Intuitive Surgical, a former "stock to sell" that has performed well since January.

• Company Profile: Manufactures robotic systems for minimally invasive surgeries.
• Growth and Quality: Has experienced strong growth and is considered a high-quality company with a wide economic moat (network effect, switching costs, intangible assets).
• Valuation Discrepancy: The stock has historically traded well above Morningstar's fair value.
• Underestimated Potential: Morningstar's analysts may have underestimated the potential for the company's products to be used in lower-complexity procedures (e.g., gallbladder removal, appendectomies), as adoption rates suggest favorable economics for hospitals.
• Future Outlook:
  • 2026: Strong demand for systems, with a forecasted revenue growth of 23%.
  • 2027 Onward: Expected suppression of system growth, with mid-single-digit growth rates thereafter.
  • 5-Year CAGR (Revenue): 11% (front-loaded in 2026).
  • 5-Year CAGR (Net Income): 18%.
• Current Valuation: Trades at 66 times 2025 earnings estimates and 49 times 2026 earnings estimates.
• Morningstar's View: The market may be expecting high growth rates to persist longer than Morningstar's current modeling. If investors believe these growth rates will continue beyond 2026, the stock might be closer to fairly valued or undervalued.

Data Center REITs (Equinix - EQIX)

Manish questions the investment strategy between emerging and established data center players, specifically mentioning Equinix (EQIX).

• Morningstar Coverage: Covers two data center REITs: Equinix and Digital Realty.
• Recent Performance:
  • 2024: Both stocks rallied significantly into overvalued territory due to market pricing of AI data center growth.
  • Early 2024 Sell-off: Hit hard after DeepSeek's emergence and the announcement of liberation day tariffs.
  • Digital Realty: Recovered some losses, down 13% year-to-date.
  • Equinix: Has not recovered, down 22% year-to-date.
• Current Valuation: Both are now three-star rated stocks. Equinix is close to four-star territory.
• Reason for Sell-off: Investors were likely overly enthusiastic, and stocks rallied too far. The market's realization of inadequate power sources and long lead times for data center construction dampened short-term growth expectations.
• Long-Term Outlook: Morningstar's analysts expect the largest hyperscalers to build their own data centers, with much of the growth coming directly from them rather than the DC REIT market.
• Investing in Emerging Players:
  • Site Location: Strategic location.
  • Zoning/Permitting: Readiness or existing permits.
  • Power Supply: Access to adequate power and capacity.
  • Cooling Plans: Including water access if needed.
  • Pre-leasing Activity: At least one major hyperscaler signed up.
  • Experienced Operators: Preference for experienced data center operators over general real estate developers.

Berkshire Hathaway (BRK.B)

Bruce asks about the impact of normalizing insurance premiums on Berkshire Hathaway's stock price.

• Valuation Components: Insurance is a significant part of Berkshire's valuation, but it also owns private companies and a public stock portfolio.
• Morningstar's Valuation Approach: Morningstar's valuation for Berkshire's insurance business has not been ratcheted up based on recent premium growth. They use the same assumptions as for other insurance valuations. Therefore, normalization of premiums is not expected to impact their assigned valuation.
• Current Star Rating: A three-star rated stock, trading at fair value.
• Potential Buying Opportunity: A sell-off in other insurance stocks that brings Berkshire down could present a buying opportunity.

Morningstar Uncertainty Rating

Guermo inquires about the impact of a high uncertainty rating on four and five-star rated stocks.

• Uncertainty Rating Definition: Captures the range of potential outcomes for a company's intrinsic value, reflecting the confidence in assigning a fair value.
  • Low Uncertainty: Higher confidence in forecasting future free cash flow.
  • High Uncertainty: Lower confidence in forecasting future free cash flow.
• Impact on Star Ratings:
  • Low Uncertainty: Requires less margin of safety for four/five-star ratings; stocks move to two/one-star territory more quickly above fair value.
  • High Uncertainty: Requires a greater margin of safety for attractive ratings; stocks can trade well above fair value before hitting two/one-star territory.
• Risk-Adjusted Approach: Uncertainty is used as a risk-adjusted way to assign star ratings. Investors need to be "paid for that additional risk" with a larger margin of safety.
• Investor Tolerance: Investors need a higher risk tolerance for high uncertainty stocks due to expected greater volatility and downside risk.
• Diversification: Investors should start with a diversified portfolio (stocks, fixed income, ETFs, mutual funds) before investing in individual stocks, especially those with high uncertainty ratings.

MAG Seven Stocks and Investment Strategy

Nick, a 25-year-old with a 30-year investing horizon, asks about investing in the MAG Seven stocks and taking profits.

• Morningstar's View on Successful Investing: Building a diversified portfolio tailored to individual risk tolerance, overweighting undervalued or fairly valued assets, and underweighting overvalued ones.
• MAG Seven Valuation:
  • Four-Star Rated: Alphabet, Microsoft, Amazon, Meta.
  • Three-Star Rated: Nvidia.
  • Two-Star Rated (Overvalued): Apple, Netflix.
• Correlation Risk: Stocks tied to AI (Nvidia, Alphabet, Microsoft, Amazon, Meta) are expected to be highly correlated in the short to medium term, meaning a sell-off in one could affect others.
• "Set It and Forget It" Strategy: A historical look at the largest market cap stocks in January 2000 (GE, Cisco, Intel, Nokia) shows they have lagged the broad market over the past 25 years. Individual stock investing requires consistent monitoring of outlook and valuation.
• Taking Profits:
  • Tax Implications: While tax implications are important, they should not dictate investment decisions.
  • Personal Strategy: Start with a partial position, set downside targets (re-evaluate thesis, dollar-cost average down if thesis holds, exit if it doesn't). Set upside targets (evaluate thesis, sell partial position, set next target, or hold if thesis supports further upside).
  • Alternative Strategy: Buy a third, set target for the next third, and so on. Or start with a larger position and buy/sell quarter-size positions.
• Holding Period: Morningstar considers itself long-term investors, with an assumption that it can take up to three years for the market to assess intrinsic value.
  • When to Sell: If a stock moves into two-star territory, consider taking profits. If it moves into one-star territory, consider selling the rest.
  • When to Buy More: If a stock sells off but the investment thesis remains unchanged, consider dollar-cost averaging.
  • Monitoring: As stocks move further from fair value, greater percentage changes in positions are warranted.

Stocks to Sell

Dave Sakiraa identifies six stocks to sell, categorized into two buckets.

Bucket 1: Tax Loss Sale Candidates

These are stocks that are down year-to-date, overvalued, have negative momentum, and can be sold to offset capital gains.

1. Wingstop (WING):

   • Rationale: Down 20% year-to-date with negative momentum (down 10% in Q4). Significantly down from its 2024 peak (above $400).
   • Valuation: Two-star rated stock at a 26% premium.
   • Economic Concern: Potential pressure on restaurants like Wingstop due to economic slowdown over the next 12-18 months.

2. Church and Dwight (CHD):

   • Rationale: Down 20% year-to-date with negative momentum (down 5% in Q4). At its lowest level since 2022, significantly down from its November 2024 peak (above $100).
   • Valuation: Two-star rated stock at a 15% premium. Has a long history of being a one or two-star rated stock.
   • Investment Thesis Concern: Lack of an economic moat and a disadvantaged competitive position due to peers having greater scale, resources, and negotiating power.

Bucket 2: Overvalued Stocks with Negative Momentum

These stocks performed well earlier in the year but are now showing signs of rolling over.

1. Roblox (RBLX):

   • Rationale: Stock is up 58% year-to-date but shows significant negative momentum (down 34% in Q4).
   • Valuation: Two-star territory, trading at a 41% premium to fair value.

2. Netflix (NFLX):

   • Rationale: Up 19% year-to-date but showing negative momentum (down 12% in Q4), appearing to roll over.
   • Valuation: Two-star rated stock at a 37% premium.

3. Citigroup (C):

   • Rationale: Up 40% year-to-date, potentially peaked and starting to roll over with slight negative momentum (down 4% this quarter).
   • Valuation: Two-star rated stock.
   • Action: Recommended to at least take some profits off the table.

4. Coinbase (COIN):

   • Rationale: Highly correlated with Bitcoin. Down 5% year-to-date, with significant negative momentum in Q4 (down 29%). Appears to be peaking.
   • Valuation: Recently became a three-star rated stock after a market sell-off, but still at a 16% premium to fair value.
   • Alternative: If one has a strong view on Bitcoin, buying Bitcoin directly might be preferable.

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Synthesis and Conclusion

This episode of The Morning Filter, pre-taped before Thanksgiving, delved into key economic indicators, company earnings, and investor questions. Dave Sakiraa and Susan Jabinsky provided insights into the Federal Reserve's potential rate decisions, the mixed signals from the retail sector, and the booming AI industry. Morningstar's research highlighted the exceptional growth of Nvidia, the valuation concerns for Walmart, and the solid performance of Palo Alto Networks.

A significant portion of the discussion addressed investor concerns about accounting practices in AI hardware depreciation, with Morningstar asserting that their valuation models are not significantly impacted by such changes. The outlook for lithium, the dynamics of the meat producer industry, and specific company analyses of Intuitive Surgical, data center REITs, and Berkshire Hathaway were also covered.

The episode concluded with a detailed explanation of Morningstar's uncertainty rating and strategies for long-term investing, including managing portfolio allocations and the concept of "taking profits." Finally, a list of six "stocks to sell" was presented, divided into tax-loss candidates and overvalued stocks with negative momentum, offering actionable advice for investors navigating the current market. The overarching theme emphasized the importance of continuous monitoring, diversification, and a risk-adjusted approach to investing.