3 Long-Term Stocks to Buy That We Still Believe In

Susan Dziubinski: Hello, and welcome to a special edition of The Morning Filter. I’m Susan Dziubinski with Morningstar. Now, most Monday mornings I talk with Morningstar research services chief US market strategist Dave Sekera, but Dave’s on a well-deserved vacation this week, so we’re doing something a little different. First, I’ll briefly talk about what investors should have on their radars this week. We’ll then segue into an in-depth conversation I had last week with a special guest about the first quarter in the markets. And then we’ll wrap up this week’s episode with a few stock picks from Dave that he and I discussed before he headed out for vacation. So let’s get things started.

On the economic front this week, we have the jobs report for March coming out on Friday. Now as a refresher, the numbers in February’s jobs report were softer than expected but nevertheless solid, reflecting a market where jobs were still being created at a healthy rate. But March figures could come in quite differently as the Trump administration’s federal jobs cuts begin to be included in those numbers. And also this week, we should see more clarity around the administration’s tariffs plan.

Now, this week’s earnings calendar is light, but we do have Constellation Brands STZ reporting. Constellation Brands has been a pick of Dave’s in the past. And also Berkshire Hathaway added the stock to its publicly traded portfolio during the fourth quarter last year. So this is one to watch. Constellation Brands’ wine and spirits segment has struggled for a while in the face of weak category demand and sort of a lack of leading brands, too. But beer sales growth had made up for it until the fiscal third quarter when beer sales growth slowed and management brought down its full-year forecast. Now that news led investors to dump the stock, and it’s down 16% this year.

Morningstar’s analyst who covers the stock, Dan Su, thinks Constellation Brands looks attractive heading into earnings. She notes that the company has carved out a wide economic moat with its strong brand equity and distributor relationships that the company’s beer portfolio has, Mexican beer portfolio has. Now, despite short-term uncertainty, Dan projects sales to grow at 5% annually over the 10-year forecast period. The stock looks 33% undervalued relative to Morningstar’s fair value estimate of $274.

I’d like to take a moment to thank viewers who tuned into last week’s episode of The Morning Filter where Dave answered many questions from our audience. And please continue to send us your questions. You can reach us at [email protected], and we hope to carve out time each episode to answer questions from our audience. So this week, I’ll do my best to tackle a question that many viewers and listeners have asked us about during the past few weeks.

And that question is: What does Morningstar think about Pfizer PFE stock today?

Morningstar’s analysts think Pfizer is attractive. The stock currently earns a 5-star rating. It trades 40% below our fair value estimate of $42, and it’s one of the stocks that our analysts recommend for the second quarter of 2025. Morningstar’s healthcare sector director Karen Andersen follows the company. And in her note about Pfizer’s earnings last quarter, Karen explained that the company’s in the process of rebuilding investor confidence after it had difficulty with forecasting covid sales in 2023 and then endured several commercial and pipeline disappointments. Morningstar at that time reaffirmed its wide economic moat rating on Pfizer due to its diversified portfolio and advancing pipeline. Karen’s 2025 revenue forecast of $63.9 billion is near the high end of management’s guidance, and Karen thinks the company’s ability to execute cost-saving programs will help to boost bottom-line growth and allow Pfizer to continue to grow its dividend. Karen thinks investors have overly punished the shares.

Karen recently talked about Pfizer and shared her outlook for healthcare stocks on another Morningstar podcast called Investing Insights. So if you want to hear more from Karen, give the March 21 episode of Investing Insights a listen. You can find it wherever you stream podcasts and videos.

Well, let’s move on to our next segment. Last week, I had an opportunity to take a deep dive into first-quarter performance across asset classes with one of my favorite students of the markets, Morningstar columnist Dan Lefkovitz. Dan is a strategist with Morningstar indexes and co-host of The Long View podcast. Dan and I chatted on the afternoon of March 26.

All right, Dan. Well, it’s been an interesting first quarter in the markets, and actually that’s probably an understatement, right? So, let’s unpack the performance from stocks to bonds, US and international, starting with the US stock market. Now, broadly speaking, how have stocks performed during that first quarter?

Dan Lefkovitz: I think interesting might be a euphemism, Susan. It’s been a pretty wild ride. We came into the year strong, kind of riding that postelection momentum. Expectations were very high. Stock prices in the US, I think, reflected high expectations coming into the year, and January was going pretty well until things really hit the skids. And in February, we saw a correction, meaning peak to trough, 10% decline for the Morningstar US Market Index, which is our broad gauge of equities. Now, things have come back a little since, and as of March 25, it’s only been a decline of 1.6% for the US Market Index for the quarter. But it’s been a variety of things that have caused concern among investors. There was the DeepSeek AI launch out of China that raised the promise of cheaper artificial intelligence, and then of course a lot of policy uncertainty. The tariffs coming out of the Trump administration, fears of a trade war. Stagflation was one of the trending terms this quarter—that dreaded combination of economic stagnation and inflation. So a lot of concerns on the part of investors.

Dziubinski: So now we’ve seen some significant sector rotation here in the US stock market, most obviously with those Big Tech names, those AI-related names, falling out of favor. So talk a little bit about what some maybe the biggest changes in market leadership have been by sector.

Lefkovitz: Yeah, rotation was another one of the trending terms this quarter. We definitely saw some of the sectors that performed really well in 2024, and even in years prior, perform poorly, and technology was really one of the keys. Our colleague Dave Sekera has pointed out that AI stocks, stocks that are leveraged to the artificial intelligence theme, entered a bear market. So declined more than 20% as a group. Now most of those are in the technology sector, but not all of them. Some are in communication services. Actually the worst performing sector this quarter, looking at Morningstar sector indexes, was consumer cyclicals. And Tesla TSLA is a big constituent there. And Elon Musk, of course, is in the administration, and there’s been a lot of issues with, but in terms of positive rotation, healthcare and energy were two of the best performing sectors in the first quarter, and those were some of the worst performers last year.

Dziubinski: Let’s talk a little bit now about value versus growth relative to last year. We saw some rotation this year, again, into value stocks. We saw that a little bit in 2024. We saw that again in that first quarter this year, right?

Lefkovitz: Yeah, that’s right. That was another rotation. And there’s overlap between the style story and the sector story. So growth underperformed value. I looked at our broad style indexes, which split the market in half, and broad growth was down considerably, down more than 4% for the quarter, while our value index was up nearly 2% this quarter. So it wasn’t the case. This wasn’t a quarter where there was nowhere to hide. Value stocks did very well, and as you said, that we did see some rotations last year. In the third quarter, there was volatility in August and September. There was the unwinding of the yen carry trade. And in that time frame, value did perform better than growth. But overall, growth beat value in 2024; growth has really trounced value going back 10, 15 years. And technology’s a big part of that, most recently AI, but prior to that, other tech drivers.

Dziubinski: Now let’s talk between large-cap and small-cap stocks. Small-cap stocks have underperformed for a very long time. Have we seen any rotation there in the first quarter?

Lefkovitz: No, this was …

Dziubinski: Oh, well.

Lefkovitz: Small caps can’t catch a break, Susan. Our small cap extended index was down over 4% for the quarter. I mentioned the broad market was down 1.6% as of this taping. Small caps have underperformed in down markets, they’ve underperformed in up markets, they’ve underperformed when the Fed is cutting rates, raising rates. That is a really unloved asset class that just can’t seem to catch a break.

Dziubinski: Now you’ve also talked in the past about investment factors as another lens through which you examine the market. So last year in one of columns on Morningstar.com, you noted that the quality factor has been pretty dominant for the prior decade and was doing the same in 2024. So, what about 2025? Is that quality factor still outperforming?

Lefkovitz: Nope. In fact, this is another huge rotation. Quality has been the worst-performing factor in the first quarter. And again, overlap with the AI story, with the tech story, with the growth story. If you look at our quality factor index for the US, which screens on profitability, you’ll see Nvidia, you’ll see Microsoft, you’ll see Alphabet, you’ll see Meta. These stocks, which again, a lot of them have leveraged to that AI theme, have done very poorly this quarter, and as a result, the quality factor has really suffered.

Dziubinski: So then let’s look on the flip side. So what factors have done pretty well this year that maybe weren’t doing as well in prior years?

Lefkovitz: Value is one—that’s both a factor as well as an investment style. So value has performed well. Low volatility has been the best performing factor if you look at our US factor index suite for the first quarter. Low volatility is a defensive factor that tends to do well when markets are selling off, so it’s not a surprise to see it doing well in a down market. Another thing I’d call out is momentum. Momentum loads up on what has done well lately. Momentum did very, very well in 2024 with that AI theme continuing from 2023. But when markets change direction and when there are rotations, that tends to trip momentum up because it’s got what did well in the past and not what the market is rotating to. So we saw the momentum factor stumble in the first quarter.

Dziubinski: Got it. Let’s talk a little bit about dividends, which are a factor, too. And there is a portion of our audience that’s of course interested in dividend stocks specifically. Can you give us an idea first of how dividend stocks did collectively in the first quarter, and then have the higher dividend-yield stocks outperformed more the dividend growth stocks or vice versa?

Lefkovitz: Yes, higher yield has outperformed dividend growth. Overall, dividend stocks have done well. In fact, as you know, Susan, we have a lot of dividend indexes. One of our dividend indexes, dividend yield focus, was actually up over 6% this quarter. A lot of energy, a lot of healthcare. The high-yield section of the equity market tends to have a value bias. So that rotation to value has really helped high yield more so than dividend growth, which tends to be more core, more exposure to technology. But dividend growth is in positive territory this quarter. It just didn’t perform as well as high yield.

Dziubinski: Got it. Let’s go global. Let’s look at things globally. So how have developed markets around the world performed this year? Are there any standouts in terms of outperformance?

Lefkovitz: Yeah, so this is another really, really important rotation, Susan. As you know, the US equity market has really been the place to be around the world, going back, really, since the financial crisis or a couple of years after. Now if you look at the universe of developed-markets stocks, the US is over 70% of that. But when we look at our developed ex-US index, it performed really, really well this quarter, up over 9% in the first quarter in USD terms. And so there’s currency effects as well. But within developed markets outside of the US, Europe was really the bright spot, which is interesting because Europe has been kind of in a long malaise economically and politically. There was an election in Germany, and there’s newfound hopes of economic growth and revitalization in Europe. The European Central Bank was cutting rates, and we saw European equities do really well this quarter.

Dziubinski: Interesting. Let’s talk about emerging markets. And we’ve talked about this asset class before, too. Were there any standouts either in terms of outperformance or underperformance so far in that first quarter?

Lefkovitz: Yeah, so overall, emerging markets did not do as well as developed markets, but they did do better than the US. So if you look at our broad Morningstar emerging markets index, which is over 20 countries around the world, it was up 3.6% for the quarter in contrast to the US, which was down. Now within emerging markets, there was a real divergence. Some markets did well, and others did not do so well. China was a real bright spot, and that’s key because it is the largest emerging market. There’s been some government stimulus there. Of course, the DeepSeek AI launch in China, really, it was a big part of the positive story in Chinese equities. China actually did well in 2024 as well, but our Morningstar China Index, which is only Chinese equities, is up around 15% for the quarter, which was really impressive. On the negative side was India, which had done quite well over many years, but maybe frothy valuations coming into the year. And our India index has declined 20%, not in the first quarter, but if you look at the fourth quarter through the first quarter.

Dziubinski: Got it. All right, let’s shift asset classes. Talk about bonds a little bit. Let’s start with the broad bond market here in the US. How have bonds in general performed?

Lefkovitz: Bonds have done well in the first quarter. It started a little bit weak, and it’s interesting, there’s really been a divergence from between bonds and equity. So as equities were rallying to start the year, bonds were declining. And then as the equity market hit the skids, bonds came to life. So the Morningstar US Core Bond Index, which represents the kind of broad investable universe for investment-grade, high-quality debt, government, agencies, corporates, gained 2.3% for the quarter through March 25 in total return terms.

I think a couple of things are happening. First, flight to safety, high-quality bonds are a safe-haven asset in times of stress, on equity market selloffs. And the other thing is that as we talked about—fears of recession and stagnation—as concerns around the economy grow, longer-term bond yields come down, expectations of some interest-rate cuts have helped the bond market.

Dziubinski: Let’s talk a little bit about subsectors. Let’s dissect the US bond market. What subsectors have sort of performed best so far in 2025?

Lefkovitz: Treasuries did well, as that safe haven and benefiting from falling bond yields. Interesting, if you look at the 10-year Treasury, which is a benchmark, we saw the 10-year Treasury yield come down from 4.8% in mid-January to 4.3% today. So bonds with more interest-rate-ensitivity, with more duration, did best with that decline in yields. So we have a bond index that’s a 10-plus year Treasury bond index, and that outperformed the Morningstar US Core Bond Index. It gained 3.4% for the quarter, but the Treasury-heavy core bond index also did very, very well.

Dziubinski: So let’s look at the flip side then in the US bond market: What were the subsectors that maybe didn’t keep up?

Lefkovitz: Corporate bonds did not do as well as Treasuries with fears of maybe a recession; that credit risk that corporate bonds have held them back a little bit. I’ll mention two areas specifically that were in positive territory in fixed income but did not keep up with the core bond index: That would be high yield and leveraged loan. These are both areas with considerable credit risk. and that economic sensitivity and those economic fears probably weighed on them. Leveraged loan especially is an interesting one because that asset class has really, really grown. It is actually bigger than high yields in the US now in terms of overall market value. And I think the rise of private markets has really helped fuel its growth. But something for investors to realize is that it is more correlated with equities than like a core bond allocation, and it does have credit risk, and it does have economic sensitivity.

Dziubinski: And it behaved like that in first quarter.

Lefkovitz: Yes, exactly.

Dziubinski: All right, let’s go global with bonds. Now, you did mention Germany earlier, and Germany did announce historic boost to spending in March, which really drove up global bond yields. So talk a little bit about what’s been going on.

Lefkovitz: Yeah, so election in Germany, new chancellor coming in, Mr. Merz, and he is really breaking with tradition and throwing away Germany’s long history of fiscal austerity, and he’s going to be conducting deficit spending on defense, on infrastructure. Some of this, of course, is related to the Trump administration and Europe feeling like it has to be more self-sufficient when it comes to defense. But yes, we did see a spike in German bond yields, and that did affect bond indexes and bond markets in Europe. So the Morningstar Eurozone Core Bond Index was down 1.3% for the first quarter in euro terms and the rising yields on those German bunds was part of that story.

Dziubinski: Got it. So now we know, Dan, you’re not a market prognosticator, but that’s still not going to stop me from asking you, since you’re a student of the markets: Do you have a handful of takeaways for investors from what was a very active and very different, frankly, first quarter of 2025 that maybe they can keep in mind as they’re looking ahead into the second quarter and the rest of the year?

Lefkovitz: Yeah, a couple of things I’d call out. One, diversification, the benefits of diversification, I think, were really on display this quarter. It paid off to not just be in stocks but to also own bonds. It paid off not just to own US stocks, but to own global equities; not just growth, but also value. And I think a lot of portfolios coming into this year were probably really heavy on US growth equities because they have done so well for so long, they have been the place to be. But in down markets sometimes the highest flyers fall the furthest, and that’s when you really appreciate the benefits of having exposure to a variety of assets in your portfolio.

Dziubinski: And then, Dan, are there any valuation lessons here for investors?

Lefkovitz: Yeah, I think this quarter really showed that valuation matters. Shout out to our colleagues on the equity research team at Morningstar who pointed out that stocks looked really stretched coming into this year. They saw the whole US market in aggregate as overvalued, and especially the growth side, especially those AI stocks, they really urged caution. They felt like valuations looked stretched and that prices had gotten a little bit too far out ahead of fair values, and they saw value on the value side of the market. And investors that took contrarian bets on value, on the healthcare and energy sector, on international stocks, those bets would’ve really paid off. It doesn’t always happen so quickly that valuation calls like that materialize. Sometimes it takes a long time for price and fair value to converge, but valuation can be a useful guide for investors.

Dziubinski: Dan, thank you for your time and for this really thorough look globally at the stock and bond markets in the first quarter.

Lefkovitz: Thanks so much, Susan.

Dziubinski: All right, we’ve arrived at everyone’s favorite part of the show: this week’s stock picks. Now these three stocks are all names that Dave had recommended in prior episodes of The Morning Filter, and Dave still likes these stocks today. These stocks also appear on Morningstar analysts’ list of top stocks for the second quarter of 2025.

All right, the first pick this week is Nutrien NTR. Nutrien earns a narrow economic moat rating, looks 28% undervalued, but has a High Uncertainty Rating. The stock’s dividend yield tops 4%. So it’s one for income investors to consider. Dave most recently recommended Nutrien on the Jan. 27 episode of The Morning Filter.

Morningstar’s Seth Goldstein, who follows the company, sees two catalysts for the stock in 2025. First, rising potash prices should lead to double-digit profit growth in that business. In fact, Seth expects potash prices to rise in 2025 as demand grows and production cuts from major producers in Belarus and Russia take hold. The second catalyst is rising retail profits. Management implemented an overhead cost reduction plan in the retail business to drive higher profits. And that plan included shutting down some locations and increasing the number of proprietary products, both of which should boost profitability.

The second pick this week is Healthpeak Properties DOC. Healthpeak is a REIT focused on healthcare facilities. Like most REITs, Healthpeak doesn’t have an economic moat. Its dividend yield approaches 6%. So this is another idea that income investors might like. The stock looks 27% undervalued relative to our $27.50 fair value estimate, and it has Medium Uncertainty. Real estate is negatively correlated with interest rates. So as interest rates come down and, despite some short-term uncertainty, Morningstar does expect interest rates to come down over the next couple of years, and when they do, the value of REITs should go up. Healthpeak was one of Dave’s picks last September, and he still likes it today.

Morningstar REIT analyst Kevin Brown expects Healthpeak to provide stable growth regardless of economic conditions. The company made the strategic decision in 2020 to sell most of its senior housing assets and invest its proceeds in the life science and medical office portfolios. The company announced that it was raising its first-quarter dividend by 1.7%, which was good to see since it hadn’t raised the dividend since it cut the dividend in the first quarter of 2021 at the height of the pandemic.

Our final pick this week is Baxter International. Baxter BAX earns a narrow economic moat rating. The stock’s trading in 4-star range and has a High Uncertainty Rating. Dave recommended Baxter stock in 2024, and he talked about the company at length on the Dec. 2 episode of The Morning Filter, so I highly recommend that interested investors watch that episode.

Baxter’s earnings last quarter were solid. Management also issued solid guidance for 2025. Management’s looking for mid-single-digit revenue growth operationally in 2025 and $2.45 to $2.55 of adjusted earnings per share.

Julie Utterback is a senior analyst with Morningstar who covers the company, and she admitted in her note after earnings last quarter that there’s high uncertainty around Baxter in the near term, with a CEO transition underway, tariffs looming, and a major divestiture that was just recently completed. But with shares trading at such a large discount to our fair value estimate, Julie thinks there’s a large enough margin of safety to recommend the stock.

Well, that’s it for this week’s episode of The Morning Filter. Dave and I will be back next week, and he and I will be talking about his second-quarter stock market outlook. So tune in to The Morning Filter next Monday at 9 a.m. Eastern, 8 a.m. Central. In the meantime, please like this episode and subscribe. Have a super week.

Got a question for Dave? Send it to [email protected].