Plus, whether to invest in Microsoft, Meta Platforms or Tesla after earnings.
In this week’s episode of The Morning Filter podcast, hosts Dave Sekera and Susan Dziubinski discuss whether investors should or shouldn’t worry about the declining US dollar. They also break down tech’s wild earnings last week: Tune in to find out if Microsoft MSFT, Meta Platforms META, Apple AAPL or ServiceNow NOW are stocks to buy today—and whether Tesla TSLA finally looks attractive after Morningstar’s big fair value upgrade. They share what to watch in the upcoming earnings reports from Alphabet GOOGL, Amazon.com AMZN, and some notable consumer defensive companies this week.
Small-cap stocks are having a moment: The co-hosts discuss whether the rally can continue. They close the episode with three small-cap stocks to buy that look undervalued now.
Episode Highlights
00:00:00 Welcome
00:06:10 Earnings on Tap: GOOGL, AMZN & More
00:11:16 New Research on MSFT, META, TLSA, AAPL
00:25:27 Audience Question: ADBE & APH
00:28:37- Stock Picks of the Week
Read about topics from this episode.
The Best ETFs to Ride the Small-Cap Stock Rally
Morningstar's Company Earnings Hub
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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 investors should have on their radar for the week, some new Morningstar research, and a few stock ideas. Well, good morning, Dave. We’ll wind it back to last week for a minute, starting with President Trump’s nomination of Kevin Warsh. As the next chair of the Federal Reserve. What does the market think of Warsh?
David Sekera: Good morning, Susan. I’ve got to say, it’s really hard to tell at this point. We did have a pretty strong selloff in the market last Friday. But, in my mind, I think there are a lot of other factors that led to that selloff that were much more impactful. I don’t think that that was really necessarily a true implication of what the market may or may not have thought of Warsh. At this point, just understanding who some of the other people were that President Trump was talking to. Comparatively, I think he’s considered to be a much safer choice. If you look at the fed-fund futures, there’s really not much of a change in the probabilities as far as when they may or may not cut rates. Now, in the past, he’s been known as being much more hawkish. I think that offsets some of the concerns that he may be too dovish here in the next couple of quarters. But at this point, we’ll wait and see how it works out.
Dziubinski: All right. Well, let’s touch base on what’s been going on with the US dollar. And the dollar dropped to its lowest level since 2022 last week. How should investors be thinking about the weakening US dollar?
Sekera: I think it’s worth watching, but based on where it’s trading and how it’s been trading, I’m not yet concerned about it. I think there’s much more scaremongering clickbait headlines out there proclaiming a lot of doom. But in my mind, the weakening here just really isn’t indicative of foreign investors really losing confidence in the US dollar. And it hasn’t been enough to change our long-term intrinsic valuations on our equity research team. So, for an investor point of view, I’d recommend investors go pull up a chart of the DEXI, DXY, that’s the US-dollar index, And look at it in three different perspectives. First, just take a look at a short-term chart of the past year. I’d say we’re coming down from relatively high levels in 2024, but we’ve really been in a trading range since last April. And I think we’re at the bottom of that range right now. Maybe we can go a little bit lower. But again, it’s not like it’s just falling off of a cliff. Then look at a five-year chart, much more of like a medium-term chart of the DEXI. We’re really at the same level as we were in early 2022 and still well above where we bottomed out in mid-2021.
And then, finally, a long-term chart. I was able to pull up a chart, going all the way back to ’19. Look at the dollar over long periods of time, like from 2003 to 2015. The dollar was a lot lower that entire time period than where we are right now. And we had a much higher dollar back when the tech bubble burst in 2001, 2002. But really, that was just much more of a flight to safety at that point in time. Dollar is a lot lower. And really, most of all the 1990s. So, again, based on where it is now, looking at it in that long-term historical perspective, it’s really not that concerning to me. I think what you really need to watch from that investment point of view, is if the depreciation were to accelerate, but not just that, I think you also need to look at US government bonds. Look at interest rates. If those interest rates were to surge at the same point in time that you had an acceleration of depreciation, that’s the point I would actually start to worry,
Dziubinski: All right, well, sticking with a somewhat related topic. The Japanese yen and bond market, which we talked about on last week’s episode, seems to have stabilized. Do you think the stability is going to last? Or are there still red flags that you’re going to be watching out for?
Sekera: We shall see. I mean, long-term Japanese government bonds, the yields are down anywhere from like 10 to 30 basis points from when they peaked on Jan. 20. If the Bank of Japan can keep rates here, keep them from surging, then I don’t think it’s going to be an issue from the marketplace. Now, having said that, when you see things like this going on. The market always seems to want to test again. You might see the market test whether or not the Bank of Japan really has the ability to keep rates lower than where they had spiked to before. So as far as like what levels I would watch, I’d look at 3% on the 10-year, 4% on the 40-year. But really, it’s much more important to look at the rate of change than necessarily those individual levels. So, if we were to see yields really break through those levels to the upside, really getting well into that 3% range, into that 4% range, then I’m concerned that the Bank of Japan might be losing control. As far as the yen goes, it did strengthen a bit. That might be an indication of repatriation, the unwinding of the carry trade that we talked about before. You might see some people selling foreign-denominated assets in order to repay the Japanese-yen-denominated debt. But again, not necessarily a huge change. So, again, nothing that I’m too concerned about here in the short term. But if it were to change, that is something that I think could cause a lot of market volatility later this year.
Dziubinski: Well, we’re in the thick of earnings season, so let’s cover some of the companies that will report this week, starting with Alphabet GOOGL. The stock had been a pick of yours in the past, but now looks about fairly valued. So, what are you going to be looking for in Alphabet’s report?
Sekera: I think with Alphabet, it’s going to be really interesting to see if the market treats them more like Meta META or treats them more like Microsoft MSFT. In my mind, there’s really three main areas to watch. First is going to be Google Cloud. What was their growth last quarter? What’s their guidance for this quarter and for the full year? Microsoft stock ended up falling after Azure supposedly missed. What the whisper numbers were, came in a little lower than what the market may have been expecting. As far as advertising goes, same thing, growth versus guidance there. Now, Meta guided to being up 30% top-line growth for the first quarter. That sets a really high bar for Alphabet to try and approach those kind of levels. And then, lastly, capex. Now, it’s interesting, Meta, it seems like the market was happy with them spending increasingly more and more amounts of capex. Yet with Microsoft, it sounds like the market’s getting increasingly concerned that maybe Microsoft is starting to spend too much and not getting the economic value out of that capex that the market would like to see.
Dziubinski: And another former pick of yours, which is Amazon AMZN, reports this week, Amazon stock looks about fairly valued, too, heading into earnings. What do you want to hear more about from management?
Sekera: Broadly speaking, we want to hear much more about the margin and whether or not that’s still improving. They’ve had a number of different efficiency programs that they’ve put in place. We’re looking for that broad companywide margin improvement. And then as far as AWS, that’s their AI cloud platform. What the growth and the guidance has been there. So, again, how is the market going to characterize the capex spending? Is it really a catalyst that they’re spending that money to drive new growth? Or is the market going to start questioning their ability to be able to generate economic value from that capex spending?
Dziubinski: Now, several of your former picks in the consumer defensive sector are expected to report this week. Let’s quickly talk about them, starting with Pepsi PEP. How does Pepsi stock look heading into earnings? And what do you want to hear about?
Sekera: Pepsi stock is definitely up off the lows from last summer. It’s only trading at a 10% discount. But for Pepsi, that’s still enough to put them in just barely into that 4-star territory. Specifically, I’m just really going to be listening very closely what’s going on with volumes. That’s been probably the weakest part of their business. Want to hear if there’s really any change in consumption patterns, specifically low-income households have still been cutting back. But we also have the impact that the GLP-1 drugs on their businesses as well. I also want to hear any discussion they have on innovation. They, of course, have been looking to offer healthier products, trying to get around some of the pressures that they’ve had from those GLP-1 drugs, but I’d like some more detail on the growth potential there. And then, lastly, just whatever commentary they might provide on the impact of the GLP-1 drugs overall on their business. What else are they doing really to try and adapt to that? I wouldn’t be surprised to hear them talking about reevaluating and maybe even rationalizing some of the brands in their portfolio.
Dziubinski: All right. Well, same questions for Mondelez MDLZ, which also reports this week.
Sekera: Mondelez stock still at a 20% discount, enough to put them in 5-star territory. Performance and guidance on volume, again, are going to be probably the most impactful things to listen for. That’s been the weakest part of their business. Now, having said that, they’ve had very good pricing in their emerging markets. I want to know if they’ve still been able to get those pricing increases, which has been more than enough to offset the volume decreases. Now, Mondelez, it doesn’t appear to be as exposed to GLP-1 drugs as we’re seeing in some of the other food companies, But I’m still curious to hear about how they’re contemplating how it affects their business.
Dziubinski: And then, lastly, we have Clorox CLX reporting this week, too.
Sekera: Clorox, 30% discount, 5-star-rated stock. This is one where we’re still looking for that ongoing normalization after they implemented their ERP software the past couple of quarters. Specifically, I want to find out what the sales/channel inventory ratios look like, whether or not that’s normalized, and looking for a rebound in gross margins as well. Any commentary, any guidance about the amount and timing of efficiency improvements that they expect to gain from ERP? Hopefully, that’s going to be something that will improve their performance over the next couple of quarters. Overall, when I look at our model here and what we think is baked into the stock, we’re not looking for anything heroic. We’re looking for top-line growth of about 4% on average over the longer term. Seems like the market’s expecting them only to get a 1% increase. That would actually be less than our expectations for inflation over time. And for operating margins, we’re looking for a margin of 20% over the long term. Looks like the market’s only pricing a 17% operating margin. And so I don’t think that we’re really getting too far away from what they’ve done on a historical basis. So, again, the stock still looks undervalued to us here.
Dziubinski: All right, well, let’s move on to some new research from Morningstar. Tech and tech-related companies had a wild earnings week last week, to say the least.
Sekera: To say the least, that’s for sure.
Dziubinski: Morningstar maintained its $600 fair value estimate on Microsoft stock after earnings. What did you think of the results?
Sekera: So, overall results came in above guidance. Revenue was up 15%. I believe revenue was $81.3 billion. Guidance was only $80.6 billion. Operating margin, 47.1%. Guidance was 45.8%. So, very well as compared to what they told the market they were going to do. Now, of course, everybody was watching what’s going on with Azure. That’s their cloud hosting business. That’s really an indication of how well they’re being able to grow that in order to be able to meet the demand out there for artificial intelligence hosting. That was up 38%. That compares to their guidance of 37%. And they still noted that they’re capacity constrained there. So, still a lot more growth yet to come. Elsewhere, results, I would just say, were generally strong across the board. When you look at their guidance, we thought it was really in line, maybe even slightly better than what we have in our model. I mean, not enough really to make us change our fair value all that much. And just generally, there was really nothing in the results or the conference call that caused our analysts really to reevaluate his thoughts on the long-term investment thesis of this company.
Dziubinski: Results did seem pretty good, yet Microsoft’s stock was down about 10% after earnings. What do you think drove that selloff?
Sekera: To be perfectly honest, I don’t really know. I mean, there were definitely a lot of media headlines out there. There were definitely stories out there talking about the Azure growth at 38% missed the whisper number. That was supposedly 39%. In my opinion, I don’t think that’s why the stock would have been down that much if you came in at 38% versus 39%. Other stories out there talking about how the market is concerned that maybe now they’re spending too much money on artificial intelligence capex. That they’re not going to be able to make enough return to be able to justify that spending. I don’t know. That doesn’t really seem to be the right reason to me as well. If you look at Meta, that stock went up because they were spending more money on AI. I think more likely than not, maybe it’s just a matter that the market is really now starting to lump Microsoft in more with the traditional software businesses than looking at is maybe more of an AI beneficiary. If you look at software stocks, they’ve been sliding really since late 2024, early 2025. A lot of those stocks have fallen over the course of 2025 to a pretty large degree. Generally, when you look at software, the market is concerned. How is AI going to disrupt these business models over the next couple of years? In our view, generally, we think AI probably improves economic value of software as opposed to replacing software. So, really hard to know exactly what it was. I mean, in some case, it might even just be the technicals, might just be the downward momentum. It’ll be interesting to see where that stock trades this week.
Dziubinski: Given that we were pretty pleased with the report. We didn’t change the fair value given that the stock pulled back. Do you think Microsoft stock is a buy?
Sekera: We think so still. Four-star-rated stock at a 28% discount to fair value. So again, this might be one of those good instances where the market’s giving you the opportunity for something that might be a core holding in your portfolio. To be able to dollar-cost-average down and be able to break up a little bit more here and bring your average cost basis lower.
Dziubinski: All right, well, you mentioned Meta, so let’s talk about Meta’s results, which the market cheered. Stock was up double digits, and Morningstar maintained its $850 fair value estimate on Meta stock. What got the market so excited? All that spending?
Sekera: Well, yeah, I mean, but that only just the spending is just the amount of revenue growth that they were able to post. A fourth quarter revenue up 24%, then they gave first go first-quarter guidance for revenue to be up 30%. And really, it’s just being driven by higher increase for for ad sales. We’re looking for 2026 revenue growth for the full year of 25%. So, for the full year, maybe a slower rate than what we’re seeing here in the first quarter. But I think really, what it gets down to, the way the market is interpreting these growth patterns here in the short term, is that artificial intelligence, and how they’re using it is already boosting their demand growth for those ads. Secondly, as you mentioned, capex guidance, that was $115 billion to $135 billion for 2026, much higher than what we or the market was looking for. So really, what the market is saying is that that additional capex is going to bolster the intrinsic value of the company by being able to increase the demand for ads over time. Now, just to put that in perspective, $125 billion is the midpoint of that guidance. There’s less than 100 companies in the United States whose market cap is greater than $125 billion. So really, just putting that into perspective, that’s a huge, huge number when you think about how much they’re going to spend on AI this year. I mean, the fact that there’s only a handful of companies with that much market cap or larger, really, I think, should make people kind of take a step back and really reevaluate kind of the long-term economic value for AI overall, and who’s going to be the big beneficiaries.
Dziubinski: So, even after the runup in Meta’s stock price, Meta still looks undervalued, according to Morningstar today. Do you think it’s a buy?
Sekera: At this point, it trades at a 16% discount to our fair value, just enough to put it in 4-star territory. But based on our Uncertainty Rating, it really puts it right at that border with 3 stars. So, not a lot of margin of safety, with as much as it’s risen off the lows at this point. In my opinion, I think, when I look at Meta, to me, it’s really just a levered bet on its ability to use AI to be able to generate these kind of growth rates over the longer term. As we’ve talked about for this year, for 2026, I think most investors, you really want to keep that portfolio balanced between still having that upside exposure to artificial intelligence. I think some of these AI stocks still have further to run. Having said that, I expect it’s going to be a very volatile year. We can see a lot of price movement in those AI stocks. I think you want to offset that with a balance of value stocks. That way, when we do get those market selloffs, value stocks should hold their pricing to the downside. You can always unwind some of that to be able to then dollar-cost-average into the AI stocks. Conversely, when the AI stocks rally too far, too fast, then you can do some profit-taking there and then put that money back into value.
Dziubinski: Morningstar increased its fair value estimate on Tesla to $400 per share after earnings. It’s a pretty big increase. So, given all the news that we got out of Tesla TSLA last week, what do you think drove the bulk of that fair value increase?
Sekera: I mean, there are a lot of different factors, but in my mind, it comes down to really two, robotaxis and robots. Our analysts noted that the expansion of robotaxis is going into seven more cities in the first half of this year. They’re also removing employees from robotaxis in Austin. So, in our mind, that shows a lot more confidence in the software. And we think that’s now going to drive even greater adoption of the full self-driving subscriptions, as people get more and more comfortable with full self-driving and robotaxis. As far as the humanoid robots go, it’s really, kind of amazing that the company said they’re going to stop producing the Model S and X electric vehicles, and they’re going to retool those factories to start making Optimus robots. When you look at our fair value increase, it really all just came down to increasing our free cash flow forecasts. So an increase in that full self-driving software subscriptions, but then also pulling forward the projections we had in our model for the Optimus robots. And so bringing forward those free cash flows that we projected further out in the future also was a large part of our increase in fair value.
Dziubinski: Tesla stock pulled back after earnings, but then bounced back on media reports that SpaceX and Tesla might merge. Between Morningstar’s fair value increase and then last week’s stock movement, is there an opportunity to buy Tesla stock right now, do you think? Well,
Sekera: I think this is also just an indication of why we rate the stock with a Very High Uncertainty Rating. I think if you’re involved in this one, it is largely a bet on Elon Musk. I think you have to be very prepared for just a very wide dispersion of how this stock is going to trade over time. Based on our new increased fair value, it is a 3-star-rated stock. Overall, I’d say we prefer to see a greater margin of safety before you look to buy.
Dziubinski: All right. Maybe they’ll change the ticker on this if they merge, Dave, to something like ELON or MUSK. We’ll see. Anyway, Apple AAPL put up what most would consider to be terrific results on better-than-expected iPhone growth. And Morningstar raised its fair value estimate on Apple stock by $20 to $260. But the market didn’t seem too impressed. Why the disconnect? And do you think Apple’s an attractive stock to buy today?
Sekera: That fair value increase, just a combination of incorporating a little bit stronger short-term iPhone growth and what we were looking for, and then a small increase in profitability. Some of that, to some degree, we’ve been watching for a while. You get that mix shift into services, which has higher margins. But, in this case, I think it’s just much more proof that the vertical integration, supply chain management are doing better and helping improve some of the margins on those handsets. Now, I would note that a lot of this was offset by the marketplace. I think there’s some concerns that a large amount of their growth came from China, especially when you compare that to kind of historically what they’ve sold into China. People are concerned whether that growth to China specifically is sustainable or not. And then there’s also a lot of concerns about the cost for memory. Memory prices have just been skyrocketing the past really four to six months or so. As those roll through, that may offset some of the efficiency gains that they’ve been getting elsewhere in their supply chain.
Overall, I think there’s a lot of just general concern also regarding their AI strategy. Still trying to really understand what tangible AI features are they going to offer? Will those products really add a lot of economic value to consumers? And then, will consumers pay higher prices for their devices for that AI product? That is still to be seen. As you mentioned, stocks really trading right at our $260 fair value, puts it right in the middle of the 3-star territory. So, not necessarily a new buy today. If you already own the stock I would just expect for a long-term investor that you probably earn over long-term, over kind of that three- to five-year hold period, the cost of equity type return for this stock.
Dziubinski: All right. ServiceNow’s NOW stock tumbled about 10% after earnings. Morningstar brought down its fair value estimate on this one to $200 per share. Unpack ServiceNow’s results, that fair value change, and let us know whether the stock is attractive today.
Sekera: Yeah. Markets just hate software stocks. They’ve hated software stocks all of 2025. And to some degree, it really doesn’t matter what the results are that companies have been posting. In this case, their revenue is up 19.5% year over year. Operating margin, 30.9%. Both of those came in above the high end of guidance. This might be, as far as I remember, the fifth consecutive quarterly beat. So again, they just keep raising and beating, but the market just doesn’t care. We made a couple of tweaks to our model. I think we have slightly slower medium-term growth and margins. So we had about a 5% cut to our fair value to $200 per share. Really not that meaningful of a cut when you look at where the stock is trading. Overall, no major change to our long-term investment thesis. It’s just a matter that we have a differentiated view in how AI may or may not impact these type of software companies over time. In our view, we think that AI really just helps enhance these products over the long term, as opposed to displacing these products.
Dziubinski: And then, lastly, UPS’ UPS. stock pulled back a bit after earnings, and Morningstar held its fair value estimate at $113. Dave, anything stand out here and is the stock attractive?
Sekera: Not really. No real change. Maintained our fair value at $113. Revenue, our analyst noted, was down a little bit, but really, that was just because Amazon’s been drawing down some of the package deliveries they’ve been using. UPS for. The international division was up against really tough comps from last year. Of course, last year, with all the tariff talk, we had a big pull forward in imports. So, that was really just a give up of what you saw from last year. Margin came in a little bit worse, but our analyst wasn’t all that concerned. He’s seeing some improvement in the domestic cost, so that should offset that. Actually looking for those domestic costs to improve over the longer term. Capex guidance was a little bit less than what he expected. So he just mentioned that that should help them be able to maintain their dividend at this point. So, nothing different this quarter than what we’ve been thinking otherwise.
Dziubinski: All right. Well, it’s time for our question of the week. This week’s question comes from a student at your alma mater, Dave, Miami University in Oxford, Ohio. It’s from Ian. And Ian actually has a couple of questions for you. So sit tight. I know that Adobe ADBE has been a pick recently, but sentiment has soured on Adobe significantly during the past two years. What do you see as the main inflection points to drive a turnaround in the stock? Is it primarily the monetization of AI features such as Firefly, Moonlight, and Graph? Or is there something else that can drive growth? Also, with Amphenol APH gaining 130% in the last year, how much more room do you see Amphenol having to run?
Sekera: It’s a big question.
Dziubinski: It’s a lot. It’s packed.
Sekera: Well, and again, I mean, it’s a great question on Adobe. And to some degree, we’ve been talking about this for several quarters in a row. And it’s really not just Adobe. It’s just all of the software stocks, just continue just to keep getting beat up in the marketplace. And to some degree, I really think it’s all about that concern. How is AI going to disrupt these businesses over time? Now, as far as like what could turn around the market sentiment, you never really know what it’s going to be until it happens. These companies have been showing a growth in the monetization of AI and their products. In this case, as he mentioned, Firefly and some of their other AI initiatives growing very strongly. So in this case, it might just be a matter of time for the market to become more comfortable. And just seeing those results continue to keep cranking out quarter after quarter.
Now, with Adobe, it is a company we rate with a wide economic moat. I think that’s an indication of our analyst confidence in the company’s long-term, sustainable competitive advantages. When you look at where the stock is trading, it’s really a value stock in our mind. It trades at less than 11 times our 2026 earnings estimate, yet we’re looking at a 12% five-year compound annual growth rate for earnings. So. again, very low rates, but that’s really because of those market concerns. Amphenol. Probably not that much more room to run. I mean, it is a 4-star-rated stock, but it’s only at a 15% discount at this point. Just looking at our base case, we are looking for very strong revenue growth. We have a five-year compound annual growth rate of 16%. Some operating margin improvement over that same time period gives us a five-year compound annual growth rate for earnings of 20%. Yet the valuation, it’s getting pretty full here. I mean, it trades at 32 times our 2026 earnings estimate. And even with the growth we’re looking for, a 26 times or 2027 estimate. So pretty full, a little bit of a little discount here at 15%. But for a stock like this, it’s probably not that much of a margin of safety as much as it’s run.
Dziubinski: All right. Well, Ian, thank you for your questions. And we’d like to hear more from any students listening to the podcast. And we’d like to hear from all of our audience. So send us your questions to our inbox, which is themorningfilter@morningstar.com.
We’re heading into the picks portion of our program. And this week, Dave has brought us three undervalued stocks from an outperforming part of the market. And what part is that? Actually, it’s small-cap stocks. During the past three months, small caps have outperformed large caps by a pretty decent margin. So, Dave, what’s driven that performance? And do you think it can continue?
Sekera: As far as the short-term performance from here, I mean, there’s really never any way to know in the short term what the market is going to do. We’re long-term investors. We’re not trying to game short-term movements here and there. But when I look at the dynamics ongoing, it is still the most undervalued part of the marketplace. Looks good from evaluation perspective, and when I think about the micro or the macro dynamics that typically impact how the small-cap stocks trade. Morningstar’s US economist is still looking for the Fed easing, probably won’t see the rate cuts until the middle and second half of the year. Overall, still looking for long-term interest rates to decline as well. And the economy really started to reaccelerate starting in the third quarter of last year. Looks like the AI buildout boom still has further room to run to the upside. Those couple of different factors should help small-cap stocks as well. But again, we’re not trying to game it here in the short term. But we definitely see the most value for long-term investors in the small-cap category.
Dziubinski: All right. Well, let’s get to those small-cap stock picks this week. Your first pick is Sensata Technologies ST. Tell us about it.
Sekera: They’re a supplier of sensors and electrical products, mostly for the transportation market. The stock trades at a 28% discount, enough to put it well into 4-star territory. Has a 1.4% dividend yield. We rate the stock with a High Uncertainty. Rate the company with a narrow economic moat based on switching costs and intangible assets.
Dziubinski: I was looking over Morningstar’s analyst report on Sensata, and it sounds like this one’s a turnaround story. Tell us about that and why you like the stock today.
Sekera: In the short term, when you look at the automotive markets, heavy vehicles, the industrial end markets, all of those have been relatively soft. If you look at guidance, revenue also looks like it’s going to be soft this quarter as well, probably a slight decline in revenue. But we do have a new management team that’s in here. They’re much more focused on profitability and really generating free cash flow here in the short term. That has been working. We’re seeing improvements in both from kind of that long-term perspective for the market overall, or their specific market that they compete in. We’re just looking for that slow but yet steady, secular trend in autos toward electrification, more efficiency, higher connectivity. All of that should be a good tailwind for the company over the longer term. From an investment perspective, we’re looking for a combination of improving growth and profitability. Over the course of this year, probably more in the second half of the year. We expect that the company should be able to maintain their dividend while still supporting a pretty healthy balance sheet. What I like here is we’ve got good momentum in the stock. It’s up 22% over the past 52 weeks, yet still undervalued. And if you look at our model, it only trades at 9.5 times our 2026 earnings estimate.
Dziubinski: All right. Well, your second pick this week is Terex TEX. Run through the numbers on it.
Sekera: So it’s a 4-star-rated stock. Trades at a 26% discount to fair value, 1.2% dividend yield. We rate this one with a High Uncertainty as well and a narrow economic moat. That narrow moat being based on the company’s switching costs and intangible assets.
Dziubinski: Now, it looks like Terex is a company that Morningstar dropped coverage on for a while, but then picked up coverage again during the fourth quarter of last year. Why is this a small-cap company that Morningstar does choose to cover? And why do you specifically like it?
Sekera: The company makes equipment for construction, infrastructure, and waste management. And I think one of the things here that really helps support the company is it has a top-three market share in each of the product categories that it competes in. Now, there’s definitely some noise going on here. They are undergoing a merger. We expect to see some significant cost-saving synergies over time. So I think that’s part of the investment thesis here. And they also noted that they plan on divesting one of the slower-growth parts of their business, the aerial platform business. So that’s another way that we think that they’re going to help free up economic value for investors. This is another one where it’s had very good momentum. It’s up 20% over the past 52 weeks, yet still a 4-star-rated stock at a pretty good margin of safety. Only trades at 10 times our 2026 earnings estimate, yet we still expect double-digit earnings growth through 2029.
Dziubinski: All right, your final small-cap stock to buy is Mosaic MOC. Give us the highlights.
Sekera: It’s a 4-star-rated stock at a 21% discount to fair value. Nice, healthy dividend yield here at 3.2%. Rate this one with a High Uncertainty, and unlike a lot of our other picks, this one actually has no economic moat.
Dziubinski: All right, now Mosaic stock is up more than 14 already this year, yet it still looks undervalued. So give us the story on this one, Dave.
Sekera: Mosaic is one of the largest producers of phosphate and potash, two of the nutrients that you need for crops. Now, they have had some pretty weak volumes, relatively low crop prices, really have kept the amount of fertilizer that farmers use relatively low. But like anything else, you can only scrimp on fertilizer application so much for so long. So, we are looking for a modest rebound here in 2026. Got to keep those nutrients in the soil, really, to be able to maximize crop production. I think the market is still expecting a weaker application this year. So, a bit of a differentiated view here in the shorter term. Now, this one, the stock is definitely up off of its December lows. It looks like there’s some good momentum going into this year on this one. Again, trades only, I don’t know, I think it’s like under 12 times or 2026 earnings estimate. So pretty modest valuation in my mind. Yet we’re still looking for above 10% earnings growth through 2029 as well. And I also like this one, too. I’ve seen a lot of commodities. I mean, not just the metals, but a lot of other commodities look like they’ve bottomed out, are starting to move higher. In my mind, I think this one could be a good play in your portfolio if we’re starting to enter a commodity super cycle.
Dziubinski: All right. Well, thank you, Dave. And as a bit of a bonus, this week, we’re including a link in the show notes to a list of some of Morningstar’s favorite small-cap ETFs to buy. So, check it out if you’d rather get your small-cap exposure from an ETF rather than choosing individual stocks. And, as always, those in our audience who’d like more information about the stocks Dave talked about today can visit Morningstar.com for more details. We hope you’ll join us next Monday morning 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.