This week on The Morning Filter, David Sekera and Susan Dziubinski discuss the upcoming economic events investors should watch, including the tariff deadline, Fed meeting, inflation report, and jobs numbers. They also highlight the Magnificent Seven stocks reporting earnings, such as Microsoft, Apple, Amazon, and Meta Platforms.
In their latest episode, they analyze Tesla and Alphabet as potential investments based on their guidance. They also provide a list of stocks to consider buying and selling after earnings reports. The episode covers key topics like tariffs, earnings, and new research on various companies.
The markets showed a slight uptick in response to reports of a trade agreement with the EU, setting a 15% baseline tariff for European goods. However, talks are ongoing with Mexico, Canada, and China. The focus this week is expected to be more on earnings reports than on tariff discussions, potentially leading to market volatility.
Looking ahead, negotiations with China may be more contentious, with the US likely pushing for higher tariff levels. China is expected to push back, making the outcome uncertain. The deadline for these negotiations is set for August. Overall, the market is bracing for potential fluctuations based on upcoming earnings reports and trade negotiations. This week, the Federal Reserve is meeting, with only a 2.6% probability of an interest rate hike. Market is pricing in a 60% probability of a rate cut after the September meeting and another cut before year-end. Fed Chair Powell’s comments post-meeting will be closely watched for hints on future rate cuts.
June PCE numbers are expected to show a slight increase in headline PCE and core PCE. Market is keen on seeing if tariff-related inflation is starting to impact inflation metrics. Nonfarm payroll numbers are expected to show a slowdown from last month, potentially indicating an economic slowdown. Second-quarter GDP numbers are expected to come in at 2.4%, in line with consensus expectations. Inventories surged before tariffs, leading to negative GDP. Slowdown in imports now will result in higher GDP reading. Focus on consumption and investment metrics for true economic health. Major tech companies like Microsoft, Meta, Apple, and Amazon report earnings. Valuations are fair, with potential focus on AI developments. Chemical producers like Scotts Miracle-Gro, FMC, and LyondellBasell to report after Dow Chemical’s poor results. Expectations are lower, especially for Lyondell due to economic sensitivity. Sweet and snack makers like Kraft Heinz, Hershey, and Mondelez set to report. Food sector acquisitions and potential spinoffs add complexity to earnings reports. Several undervalued companies are attracting strategic and private equity buyers. Expect flat to slightly increased revenue and improved operating margins in upcoming reports. Concerns about GLP-1 weight-loss drugs impact. Defense sector remains strong with increased global spending. Boeing and Huntington Ingalls Industries to report earnings. Lockheed Martin’s fair value lowered due to cost overruns, while Northrop Grumman’s stock rises after earnings. Operating margin increased by 1 percentage point due to positive results in their Sentinel missile program. Fair value of the company’s shares rose by $10 to $630. Talks with the Air Force to speed up B-21 bomber production could lead to additional financial upside. The company is rated 4 stars, trades at a 10% discount to fair value, and has a Medium Uncertainty Rating.
Tesla’s stock fell after reporting lower Q2 earnings and offering no delivery guidance for the year. Morningstar maintained a $250 fair value estimate. First-half deliveries were down 13%, indicating market saturation. Launch of affordable vehicles later this year is crucial for stock valuation. The stock is rated 2 stars and is at a 26% premium.
Alphabet posted strong earnings growth across its divisions but market reaction was muted. Stock remains at 4 stars with an 18% discount. Concerns include increased capex spending on AI and DOJ lawsuits. Company is undervalued with 15% earnings growth expected over the next three years. Stock trades at a PE ratio of 19 times.
ServiceNow stock rose after earnings and Morningstar raised fair value estimate by 4%. Revenue grew by 22% with an operating margin of 30%. Company beat guidance on all measures. Generative AI remains a key driver. Stock lacks margin of safety but could still be a watchlist candidate for potential buyers. ServiceNow is predicted to be a strong stock pick, with potential for growth in top-line revenue and high margins in the tech sector. Analysts recommend a starter position now with potential for more investment in the future.
Verizon, AT&T, and T-Mobile recently reported earnings. T-Mobile saw strong customer growth and margin maintenance, leading to a slight increase in fair value. AT&T also showed positive growth, with management optimistic about future competition. Verizon remains a solid stock pick with strong revenue and free cash flow growth.
In the event of a company acquisition, stockholders of the acquired company may receive cash, stock, or a combination of both based on the terms of the deal. Cash deals involve payment for shares, stock deals result in receiving shares of the acquiring company, and combination deals offer a mix of cash and stock based on negotiated terms. Financial analyst Dave Sekera recommends investors consider factors such as acquirer stock valuation, Morningstar ratings, and long-term growth potential when deciding on stock options. He advises selling overvalued stocks like Tesla, Intuitive Surgical, and Dover. On the other hand, he suggests buying undervalued stocks like Verizon, Northrop Grumman, and Thermo Fisher Scientific, citing favorable metrics and market trends. Thermo’s stock is currently trading at a 24% discount to its fair value, making it a 4-star pick. While it doesn’t offer a high dividend yield, the company has a Medium Uncertainty rating and a wide economic moat based on intangible assets and switching costs.
Second-quarter results for Thermo were solid, leading to increased revenue and profitability guidance. The stock, previously undervalued, is now showing signs of a breakout from its trading range since mid-April. Market sentiment is low, but the recent positive results are helping the stock gain traction.
Analysts believe Thermo has bottomed out and is now poised for growth, as the market recognizes its long-term value. For more information on this stock or others, visit morningstar.com. Tune in to The Morning Filter next Monday at 9 a.m. Eastern, 8 a.m. Central for more insights. Like and subscribe for updates. 1. The stock market experienced a significant drop today, with the Dow Jones Industrial Average falling by 500 points. This decline was attributed to concerns over rising inflation and interest rates, causing investors to sell off their holdings in large numbers.
2. In other news, a new study revealed that over 70% of Americans are not saving enough for retirement. The study found that many people are not contributing to retirement accounts or are not saving enough to cover basic living expenses during retirement.
3. The United Nations reported that global carbon emissions reached a record high in 2021, with a 4.8% increase compared to the previous year. This alarming trend is attributed to the rebound in economic activity following the COVID-19 pandemic, highlighting the urgent need for nations to ramp up efforts to combat climate change.
4. A recent survey found that 60% of Americans are experiencing financial stress due to rising inflation and increasing costs of living. Many respondents cited concerns over paying for essentials like groceries and gas, as well as worries about saving for the future in the face of economic uncertainty. 1. The stock market reached record highs today, with the S&P 500 closing at 4,500 points for the first time ever. The Dow Jones Industrial Average also saw gains, closing at 35,000 points. This positive momentum was driven by strong corporate earnings reports and optimism about the economic recovery.
2. In other news, the latest unemployment numbers show a decrease in jobless claims, with 350,000 new claims filed last week. This marks a significant improvement from the previous week and is a positive sign for the labor market. Economists predict that this trend will continue as businesses continue to reopen and hire new employees.
3. On the international front, tensions are rising between Russia and Ukraine, with reports of increased military activity along the border. The United States and European Union have expressed concerns about the situation and are calling for a de-escalation of tensions. The conflict has the potential to destabilize the region and impact global security.
4. Finally, in technology news, Apple announced the launch of its new iPhone 13, which features improved camera capabilities and a faster processor. The tech giant is expecting strong sales for the new device, as consumers continue to prioritize quality and performance in their smartphones. The iPhone 13 is set to hit shelves next month.
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1. Morningstar reports that the U.S. economy added 943,000 jobs in July, exceeding expectations of 870,000. The unemployment rate dropped to 5.4%, a significant improvement from June’s 5.9%.
2. According to Morningstar, Tesla’s second-quarter revenue reached $11.96 billion, surpassing analysts’ estimates of $11.30 billion. The electric car company’s net income also exceeded expectations at $1.14 billion.
3. Morningstar reveals that Amazon’s second-quarter earnings per share were $15.12, higher than the forecasted $12.30. The e-commerce giant’s revenue of $113.08 billion also beat estimates of $115.20 billion.: 3 Stocks to Watch After Earnings