5 Stocks to Buy That We Still Like After Earnings

Key Takeaways

• The Fed’s next move is … unclear.
• SpaceX SPCX: Earnings aren’t the only thing to keep an eye on.
• What to watch this week: Earnings reports from the triple-digit club.
• Our take on Microsoft MSFT, Meta Platforms META, Amazon.com AMZN and Apple AAPL after earnings.
• Why we like Baker Hughes BKR.
• 5 undervalued stocks to double down on after earnings.

In this new episode of The Morning Filter podcast, host Susan Dziubinski covers the key takeaways from last week’s Fed meeting (and hint, there weren’t many). It will probably be another volatile week for SpaceX stock—and earnings aren’t the only reason why. This week, we’ll also get earnings reports and forecasts from a few members of the triple-digit club, including Advanced Micro Devices AMD, SanDisk SNDK and Western Digital WDC.

Susan discusses what Morningstar’s analysts thought of the latest earnings reports from Microsoft, Meta Platforms, Amazon.com, Apple, and Seagate Technology STX; tune in to find out which stocks in the group experienced fair value changes. The show wraps with a handful of stocks to buy after earnings.

Got a question for Dave? Send it to themorningfilter@morningstar.com.

Transcript

Susan Dziubinski: Hello, and welcome to The Morning Filter Podcast. I’m Susan Dziubinski with Morningstar. Every Monday before market open, I sit down with Morningstar Chief US Market Strategist Dave Sekera to talk about what’s been going on in the market, what investors should watch in the week ahead, some new Morningstar research, and a few stock ideas.

Now, unfortunately, Dave can’t be with us this morning, but as they say, the show must go on, so I’ll be flying solo today. I’ll share key takeaways from Morningstar’s chief economist about last week’s Fed meeting, update you on some new research from Morningstar about the Big Tech names that reported last week, and I’ll cover what Morningstar’s analysts will be watching this week on the earnings front. And Dave and I did touch base, so I do have some stock picks from him that I’ll share with you, too.

Fed Meeting Takeaways

All right, let’s kick things off with last week’s Fed meeting. As expected, the Federal Reserve left interest rates unchanged. Three out of the 12 voters dissented from the decision. They favored a rate hike. Fed Chair Kevin Warsh was asked why most of the committee decided to stand pat and why the three dissenters favored a hike. But he didn’t really offer much of an answer to either question, which is of course in line with his stance that the Fed should comment less.

But Morningstar Chief Economist Preston Caldwell thinks Warsh will support some policy tightening at upcoming meetings, given Warsh’s recent comments that the increase in the 10-year Treasury bond yield is an example of “markets reacting in real time to incoming information.” Now, after the meeting, the market appeared to expect one rate hike in 2026 and a second in early 2027.

SPCX: Earnings, Expiring Lockups

Now, the week ahead could be a volatile one for SpaceX SPCX stock, which is down about 36% since its IPO in June. Now for starters, SpaceX is reporting earnings for the first time as a public company this week. Morningstar analyst Nic Owens covers SpaceX, and he’ll be keeping an eye on a few things in particular. For one, Nic’s interested in second-quarter revenues for SpaceX’s AI business, which Nic says will include infrastructure rental payments from Anthropic, Google, and possibly Reflection, as well as their cost and capex run rate. Now, Nic, of course, doesn’t expect AI to be profitable for a long time.

Another key area he’s watching will be revenue and profits for the Starlink satellite communications business to see what kind of trendline for subscriber growth they’re experiencing. But SpaceX’s earnings report isn’t the only thing to watch from the company this week. On Aug. 6, pre-IPO investors will be able to sell nearly a billion shares of SpaceX stock, which is more stock than the company floated in its IPO. And while it’s unclear how many shares will be sold, Nic expects there to be a wave of selling given that these sellers have had long holding periods and a low cost basis.

Now, even after its pullback, Morningstar thinks SpaceX stock is overvalued. Our fair value estimate is $62 per share. Now, there’s a link in this episode’s show notes to Morningstar’s SpaceX earnings preview and to additional commentary on those expiring lockups.

Now, also on the earnings front this week, we’ll hear from three of the members of the triple-digit club, Advanced Micro Devices AMD, SanDisk SNDK, and Western Digital WDC. Now, all three names have, of course, gotten swept up in the excitement around the AI buildout boom, but they also had stock prices that struggled in July as we saw the rotation in that AI trade.

So, where do these stocks stand from a valuation perspective heading into earnings? Well, Morningstar assigns AMD a $530 fair value estimate. So that stock looks a bit undervalued today. SanDisk is trading above Morningstar’s $1,000 fair value estimate and Western Digital looks overvalued heading into earnings, too. We currently value that stock at $415 per share.

MSFT: Big Postearnings Pop

It’s time to move on to some new research from Morningstar about some of the companies that reported last week. And we’ll start with one of Dave’s top stock picks, and that’s Microsoft MSFT. Now, Microsoft stock was up 15% after the company reported really good results, and Morningstar held its fair value estimate at $600 per share. Now, Azure growth and all three segments beat the high end of guidance. Morningstar Senior Analyst Dan Romanoff, who, of course, follows Microsoft for us, says that the company’s outlook is slightly ahead of our model. And Dan says that the strength in Azure in both traditional and artificial intelligent workloads is pulling along other AI solution.

Some of Dan’s key takeaways from results are that near-term demand indicators remain robust and that demand for Azure AI services is surging, which is a clear long-term positive. Now, while Dan did raise his growth forecast, it was offset by a margin decrease due to a higher Azure capital expenditure. So, as a result, that’s why we held the fair value at $600 per share. And then Dan reiterated that Microsoft is one of Morningstar’s top picks in tech today.

META: Pullback Overdone

Now, Meta’s META stock fell 8% after the company missed on earnings and gave lower-than-expected revenue guidance. Morningstar maintained its $850 fair value estimate on Meta stock. Couple of takeaways from the report from Malik Khan, who covers Meta for Morningstar. For one, AI-driven content and ad recommendations are helping Meta to drive higher price and volume levers in its ad business. Two, Malik expects Meta to actively pursue compute selling as a revenue stream in 2026.

And lastly, as AI costs mount, he thinks Meta will continue to trim costs in its own organization. He therefore expects operational efficiencies and robust top-line growth to keep margins in the mid to high 30s over the next five years.

Our Take on AMZN Now

Amazon’s AMZN stock rose 15% after the company reported terrific second-quarter results. Now again, Morningstar’s Dan Romanoff, who covers Amazon, noted that, in particular, AWS was strong, with growth accelerating sharply to 37% year over year. And that’s the fastest growth in 18 quarters. And that’s especially impressive given the unit scale. Now, the surging demand in AWS spans both traditional and AI workloads and supports management’s massive capital investment plans.

Now, interestingly, Dan pointed out that several headwinds, including tariffs, massive data center expansion, and conflicts in Ukraine and the Middle East could have hampered results, but didn’t. So we raised our fair value estimate on Amazon to $300 up from $280 per share. And even after that pop in stock price last week, Amazon looks undervalued after earnings.

AAPL Earnings Recap

Now, Apple’s AAPL stock fell 7% after earnings. The latest quarter’s numbers were good, but guidance for next quarter was lighter than expected due to a combination of factors that included supply constraints, memory inflation, and foreign-exchange headwinds. In fact, Morningstar Senior Analyst Will Kerwin says we expect supply constraints and memory inflation to weigh on results through 2027, but we expect Apple’s recent pricing increases to help mitigate some of that impact. Now, Morningstar did trim its fair value estimate for Apple to $285 from $290, and the stock looks overvalued this morning.

STX: No Signs of Slowing

All right, we’ll talk about one last tech stock that reported last week, and that’s Seagate Technology STX. The stock rose after the company posted stellar results and increased guidance. Morningstar’s Eric Compton, who follows the stock, noted that Seagate’s results suggested that the AI-driven storage cycle is still accelerating. Morningstar ticked up its fair value estimate on the stock to $700.

But Eric also said that Seagate remains tricky to value because it’s so reliant on the AI cycle. Morningstar still views the hard disc drive makers as having no moat. Now, Eric concluded, “If supply were to exceed demand, we would expect material pricing erosion. But for now, Seagate has a clear path to an earnings compound annual growth rate above 30% for years.” But for now, Seagate stock continues to look overvalued.”

New Stock Idea: BKR

All right, let’s hop off the technology train here for a minute. I’d like to flag a new investment idea to viewers, and that’s Baker Hughes BKR. Now, Morningstar has changed its thinking on Baker Hughes after earnings. For starters, we raised our fair value estimate to $73 per share up from $60. Josh Aguilar, who covers the stock for Morningstar, says the fair value increase was due to the long-term orders we think Baker Hughes can capture on power systems tied to data centers and liquefied natural gas liquefaction equipment, as well as favorable pricing. Morningstar also increased its Capital Allocation Rating on the company to Exemplary, given the attractive incremental returns the company is expected to generate. The stock looks undervalued today. It’s trading 17% below fair value this morning.

All right, let’s get to the stock picks portion of our podcast. Now, as I said at the top of the show, I did touch base with Dave, and he does have a handful of prior picks that he still likes after earnings. These are stocks to double down on.

Stock Pick: MSFT

Dave’s first pick is, again, a surprise to no one. It’s Microsoft. The company, of course, has a wide economic moat that stems from three of our five moat sources, which are switching costs, network effects, and cost advantages. Microsoft’s stock still looks 23% undervalued even after last week’s postearnings pop.

Now, of course, Dave talked at length with our Morningstar Microsoft analyst in a bonus episode of The Morning Filter, and they talked about how we arrive at that $600 fair value estimate. So if you haven’t seen it, you can find that episode wherever you get your podcasts.

But a couple of key assumptions from Morningstar on Microsoft. For starters, we model a five-year compound annual growth rate for revenue of about 16%. And we think that revenue growth will be driven by Azure, Office 365, Dynamics 365, LinkedIn, and emerging AI adoption. Now, Azure is, of course, the single most critical revenue driver over the next 10 years as hybrid environments drive mass cloud adoption. We also model operating margins to remain approximately steady, near 47%, over the next five years, driven by gross margin pressure from a mixed shift to Azure, offset by some operating leverage.

Stock Pick: GOOGL

Dave’s second stock pick to double down on after earnings is Alphabet GOOGL. Now, Alphabet is another wide-moat stock, and its moat comes from four moat sources: intangible assets, network effect, cost advantage, and customer switching costs. Stock is undervalued, trading 18% below fair value this morning. Now, Dave and I talked quite a bit about Alphabet on the podcast last week after the company reported earnings. So you can check that out if you want to hear straight from Dave about the stock.

Morningstar assigns Alphabet a $433 fair value estimate. We forecast Alphabet’s top line growing at an 18% compound annual growth rate over the next five years. We view Google Cloud as a key growth driver for Alphabet’s business. We project Google Cloud sales, excuse me, to grow 47% annually on average over the next five years as cloud migrations, increased usage of AI, and additional software add-ons all work together to bolster the firm’s cloud sales. Alphabet continues to show real progress in artificial intelligence monetization across its primary segments.

Stock Pick: SPGI

Dave’s next former pick to double down on after earnings is S&P Global SPGI. Now, S&P is known, of course, for its credit rating and indexing businesses. Here we have another wide-moat stock with its moat sources being intangible assets and network effects. This morning, the stock is trading 17% below our $505 fair value estimate. Now, S&P Global was a pick of Dave’s early in March after it’d kind of fallen off a cliff on worries about what impact AI could have on its business.

Now, since Dave’s recommendation, the stock has been kind of flat, and Dave will be talking more about S&P Global in a future episode, too. But in a nutshell, we think this is a high-quality business trading at an attractive price. We think the threat of AI to the business is overstated. We think the ratings business can grow in the high single digits through the cycle, driven by price increases and nominal GDP growth. We also like that the company is ramping up share repurchases while the stock is undervalued. S&P expects more than $7 billion of buybacks in 2026.

Stock Pick: SCHW

Our next stock pick this week that we still like after earnings is Charles Schwab SCHW. Wide-moat company with durable cost advantages, very solid balance sheet, pays a modest dividend. Shares are trading about 15% below our $124 fair value estimate as of this morning. Now, of course, the company put up some strong second-quarter results on the back of market and trading tailwinds. Overall, Morningstar is constructive on Schwab’s competitive position and its product road map. We expect the company to continue to benefit from strong market growth in both its retail brokerage and wealth management channels.

We also think Schwab is leveraging its scale to develop new capabilities and deepen its relationship with clients. In fact, our analyst, Sean Dunlop, calls Schwab, “a compelling growth at scale story.” For the next decade, Morningstar’s forecasts call for 10% compound annual growth in net revenue, 11.3% compound annual growth in operating income, and 13.7% compound annual growth in diluted earnings per share.

Stock Pick: NOC

The final stock pick this week, a stock Dave still likes after earnings, is Northrop Grumman NOC. Here again, a wide-moat stock with a modest dividend. The moat here is based on intangible assets and switching costs. This morning, the stock is trading 14% below our $630 fair value estimate.

Now, like most defense stocks, Northrop has been on a bit of a roller-coaster ride this year, shooting up prior to the conflict in Iran and pulling back thereafter. But to paraphrase Dave, pullback is providing investors with an opportunity to buy a high-quality stock on sale. The company delivered a beat-and-raise second quarter, though there was some margin softness as the company wrote down increased costs to develop two guided missile programs and an extended solid rocket booster. We think the company has exposure to some hefty military development programs that are relatively early in their lifecycle.

Morningstar forecasts top-line growth averaging 5.1% in the next five years, mostly due to Northrop’s existing commitments on early-stage programs like the Sentinel strategic missile and the B-21 bomber. We expect slightly improving margins over the medium term as the firm moves into more profitable production contracts from development-stage programs, and it may even achieve operating leverage on increased sales from overseas defense spending growth.

All right, we’ve reached the end of this week’s podcast. Thank you for sticking with me. If you’d like more information about any of the stocks I talked about today, you can visit morningstar.com for more details. I hope you’ll join Dave and I next Monday for The Morning Filter Podcast at 9 a.m. Eastern, 8 a.m. Central. In the meantime, please like this episode and subscribe. Have a great week.