Chocolate Instead of Chips: Morningstar Names Stocks to Buy and Sell in September

Dave Sekera, chief strategist for the U.S. market at the research firm Morningstar, focused on defensive sectors—which tend to be more resilient during a broad market downturn—when selecting stocks for September. The most striking contrast in his selection is between chocolate and snack maker Mondelez and memory chip supplier SanDisk. Sekera recommends buying shares of the former and selling shares of the latter.

Mondelez, a manufacturer of chocolate and snacks (maker of Milka chocolate and Oreo cookies), has a rating of four out of five stars on the Morningstar scale (the rating indicates the likelihood that the asset’s value will grow at a rate exceeding its risk-adjusted fair return over a long-term horizon), a 19% discount to the strategist’s estimated fair value, a dividend yield of 3.3%, and a wide “economic moat”—Morningstar’s term for a sustainable competitive advantage. Among food manufacturers, the analyst considers Mondelez the best choice thanks to emerging markets. They account for 40% of the company’s sales, and in the second quarter, Mondelez’s revenue in this segment grew by 7.4%. Meanwhile, the European business remains weak.

The utility company Alliant Energy has a four-star rating, a 12% discount, and a dividend yield of 3.2%. In July, the stock price rose to $78, then—in mid-August—fell back to around $68. According to the analyst, the market is giving investors a second chance to buy the stock. Morningstar expects Alliant’s growth to accelerate thanks to a boom in data center construction and a new capital expenditure program that is 25% larger than the previous one.

Medical equipment manufacturer Baxter has a four-star rating, and its stock was trading 35% below Morningstar’s valuation at the end of August. The stock is unattractive to dividend investors: about a year ago, the company cut its dividend to $0.01 per share, Sekera noted. However, in the last quarter, revenue and earnings significantly exceeded expectations, and Baxter’s management raised its earnings forecast for this year.

Memory chip manufacturer SanDisk and networking equipment supplier Ciena each have two stars (the rating implies that, in Morningstar’s view, are most likely to receive a risk-adjusted return on these stocks that is below fair value). Morningstar has assigned a very high level of uncertainty to both stocks. Its strategist attributed this to the fact that suppliers are expanding capacity, so supply will eventually catch up with demand. Morningstar’s research team expects the profits of such manufacturers to peak in 2028. After that, operating leverage could work in the opposite direction: prices will fall, margins will shrink, profits will plummet, and valuation multiples will decline. At the end of August, SanDisk was trading nearly 50% above Morningstar’s calculated fair value, and Ciena was trading 40% above it.

Shares of Brinker International, owner of several restaurant chains, following strong gains in the spring and summer (+63% year-to-date on the back of strong financial results), were trading at a 66% premium to Morningstar’s fair value estimate and were downgraded to a one-star rating (this rating implies that, in the opinion of strategists, the market is pricing in an overly optimistic outlook, which limits growth potential and exposes investors to the risk of capital loss). Morningstar expects the company’s operating profitability to peak as early as 2026. According to Morningstar’s assessment, the market expects Brinker to deliver significantly faster business growth and profitability than the company is capable of achieving.

The consumer staples sector has historically fared better during September sell-offs: investors shift into defensive stocks, which typically decline less than the broader market. The utilities sector is also a “classic defensive” sector in the first month of fall and has historically outperformed the S&P 500. The healthcare sector, meanwhile, has generally outperformed the broader market both during economic downturns and market declines, according to a Morningstar strategist.

At the same time, the analyst considers the consumer staples sector as a whole to be overvalued due to the high prices of Walmart and Costco stocks, although many individual stocks within the sector are, on the contrary, undervalued.

In the technology sector, Morningstar recommends caution: during a broad market sell-off, fast-growing tech stocks typically fall faster and harder than others. Rising bond yields also make expensive stocks less attractive, although the analyst continues to view certain AI-related companies positively. Companies that depend on consumer discretionary spending may also underperform the market due to their sensitivity to the economy and cuts in household spending.

This article was AI-translated and verified by a human editor