On this week’s episode of The Morning Filter, David Sekera and Susan Dziubinski discuss the latest inflation numbers and their potential impact on the Federal Reserve’s interest rate decision. They also highlight key earnings reports from companies like Tesla and Alphabet, as well as stock picks that have outperformed the market. The episode covers bank earnings, fair value estimate changes for Nvidia and Advanced Micro Devices, and potential developments at Kraft Heinz.
Dave’s stock picks this week focus on undervalued names that have performed well over the past year. The episode touches on inflation numbers, the Fed’s approach to tariffs and monetary policy, and the current state of the economy. Dave explains the Fed’s dual mandate and the factors influencing their decision-making process. Additionally, upcoming economic reports like home sales and durable goods orders are highlighted for their potential impact on GDP in the second half of the year. Durable goods orders impact the economy 3-9 months later. Recent swings in orders due to tariffs and Boeing aircraft orders. Consensus predicts an 11% decline in June, but a better-than-expected result may indicate a smaller economic slowdown.
Housing market trends impact GDP, with new home construction and existing home sales affecting spending and GDP growth. PMI reports indicate economic expansion or contraction based on a score above or below 50.
Tesla’s declining deliveries suggest market saturation. Analysts await updates on the affordable vehicle launch and robotaxi testing. Despite strong earnings growth projections, the stock is overvalued by 30% and rated 2 stars. Earnings expected to increase significantly by 2028. Alphabet stock is valued at $4.25 in 2028, trading at 75 times 2028 earnings. Analysts are looking for updates on generative AI search, Google Cloud performance, and YouTube features in their upcoming report. Morningstar rates Alphabet as undervalued with potential catalysts in earnings results and regulatory clarity.
ServiceNow, also reporting this week, is expected to provide insights on AI integration for top-line growth. The company’s stock is trading at a 5% discount to fair value, with potential for growth due to AI expansion and strong balance sheet. Analysts are eager to hear about AI performance and growth rates in upcoming earnings report.
Defense companies Northrop Grumman and Lockheed Martin are set to report this week. Lockheed Martin was previously highlighted as a strong pick for investors. Analysts will be listening for updates on outlook and performance from both companies in their upcoming reports. Defense spending is on the rise globally, with commitments from the US, NATO members, and allies in the Middle East and Asia to increase spending. Lockheed and Northrop Grumman are attractive investments, with wide economic moats and medium uncertainty. Big banks, including JP Morgan and Citibank, beat earnings estimates, but Wells Fargo saw a 3% drop in stock value. Interest income was a struggle for most banks, except for Citibank, which saw a rally. U.S. Bancorp also beat earnings but saw a slight drop in stock value. Their expense control is helping to offset lower net interest income. Johnson & Johnson (JNJ) stock rose 6% after earnings, leading to a fair value increase to $172 from $164. Management raised top-line growth guidance to 4.8% and EPS growth to 8.7%. J&J has a plan to move US-bound products within 5 years to avoid tariffs. A strong R&D pipeline supports long-term growth prospects.
Morningstar raised Taiwan Semiconductor’s (TSM) fair value estimate by 6% to $306 due to strong quarterly results and increased full-year growth guidance to 30%. Gross margins are expected to expand into the high 50% area. The stock is a 4-star-rated stock trading at a 20% discount, making it an attractive buy.
ASML stock dropped after earnings as the company tempered its growth forecast. Management guidance was guarded, leading to uncertainty. Concerns arise regarding the demand for AI and the capacity needed for the next few years. Top-line growth is forecasted at 5% in 2026, stepping up into the low teens in 2027 and 2028. Morningstar analyst Sekera made slight reductions in short-term and medium-term estimates for ASML stock due to slower guidance, lowering fair value by 3% to $950 per share. Nvidia and AMD fair value estimates were raised by 20% and 17% respectively after sales ban in China was lifted. Pepsi stock surged 7.5% after earnings, showing sequential volume increases in snacks and beverage business. Kraft Heinz is evaluating strategic actions to unlock shareholder value by potentially splitting up its operations. Kraft Heinz stock remains undervalued at a 46% discount to fair value, making it attractive with a 5.8% dividend yield. Sekera explains that the cost of equity is determined by the intrinsic value of a company and how that translates to the individual stock value. The intrinsic value of a company is determined by the present value of future free cash flow using a discounted cash flow model. This model forecasts future cash flows over specific time periods. The weighted average cost of capital (WACC) is used to calculate the present value of future cash flows by considering the blended cost of debt and equity.
CNH Industrial stock is considered undervalued, trading at a 40% discount to its intrinsic value. With a 1.9% dividend yield, the company has a narrow economic moat based on switching costs and intangible assets. Despite a 12-month market outperformance, CNH’s stock is deeply undervalued, with potential for further growth.
Medtronic stock is up 18% in the past year and remains a 4-star-rated stock at a 20% discount with a 3.2% dividend yield. The company has medium uncertainty and a narrow moat based on switching costs and patents on its devices. In the healthcare sector, there is a rotation towards undervalued stocks like Medtronic amidst policy uncertainty. Investing in devices and medtech is recommended due to market rotation. Projections include 5% top-line growth, 7.2% earnings growth, and a 3.2% dividend yield. Zoom Communications is a four-star-rated stock with a 20% discount, Medium Uncertainty rating, and a narrow economic moat. Despite a 25% increase in the past year, Zoom stock is undervalued with potential for growth in new services. Morningstar’s analysis suggests potential for investors to revisit Zoom stock. Top-line growth is projected at 3% on average, with new services expected to drive expansion. Zoom stock currently trades at 13 times the fiscal-year 2026 earnings estimate. Join The Morning Filter for more insights on stock picks and market updates. 1. New study shows that 80% of Americans believe climate change is a major threat to the country. The survey conducted by a leading research firm found that 60% of respondents believe immediate action is needed to combat the crisis.
2. The stock market experienced a sharp decline today, with the S&P 500 falling by 3%. Analysts attribute the drop to concerns over rising inflation rates and uncertainty surrounding the Federal Reserve’s monetary policy.
3. A record-breaking heatwave is expected to hit the western United States this weekend, with temperatures reaching up to 110 degrees in some areas. Officials are urging residents to stay hydrated and take precautions to avoid heat-related illnesses.
4. The FDA has approved a new drug for the treatment of Alzheimer’s disease, the first of its kind in nearly two decades. The drug, which has shown promising results in clinical trials, is expected to provide much-needed relief for patients suffering from the debilitating disease.
5. The U.S. government has announced plans to invest $7 billion in expanding access to high-speed internet in rural areas. The initiative aims to bridge the digital divide and ensure all Americans have access to reliable internet services. 1. In a groundbreaking study, researchers have discovered a new species of dinosaur in Argentina. The fossilized remains of the creature, named Llukalkan aliocranianus, were found in Patagonia and are estimated to be around 80 million years old.
2. The United States has surpassed 100 million COVID-19 vaccine doses administered, a major milestone in the fight against the pandemic. President Biden has set a new goal of 200 million doses by his 100th day in office, as vaccination efforts continue to ramp up across the country.
3. Tesla has announced plans to invest $1.5 billion in Bitcoin and accept the cryptocurrency as payment for its products. The move has caused a surge in the price of Bitcoin, with the digital currency reaching new record highs. This decision marks a significant step towards mainstream acceptance of cryptocurrencies.
4. The stock market experienced a sharp decline today, with the Dow Jones Industrial Average dropping over 600 points. Tech stocks were hit particularly hard, with companies like Apple and Amazon seeing significant losses. Investors are concerned about rising bond yields and the potential impact on future economic growth.
5. NASA’s Perseverance rover has successfully landed on Mars, beginning its mission to search for signs of ancient life on the red planet. The rover will collect samples of Martian rock and soil for future return to Earth, a groundbreaking step in the exploration of our solar system.
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1. Morningstar reports that the unemployment rate in the UK has dropped to 4.6%, the lowest level since the start of the pandemic.
2. According to Morningstar, the UK economy grew by 1.3% in the second quarter, surpassing expectations and marking a strong recovery from the impact of Covid-19.
3. Morningstar reveals that inflation in the UK has risen to 2.5% in the past month, exceeding the Bank of England’s target rate for the first time in two years.: 3 Stocks That Are Beating the Market