Plus, our take on Microsoft, Meta Platforms, and Apple before earnings.
This episode of The Morning Filter marks the podcast’s third anniversary. Hosts Dave Sekera and Susan Dziubinski reveal how the stock picks from the podcast’s first episode have performed and share which ones are still attractive stocks to buy today. They also discuss an under-discussed risk factor that contributed to market volatility last week. And they welcome special guest (and Fed watcher) Sarah Hansen to preview this week’s Federal Reserve meeting and parse what to watch for from the Fed this year.
It’s a big earnings week ahead: Tune in to find out what to look for as Microsoft MSFT, Meta Platforms META, Apple AAPL, and Tesla TSLA (among others) report. They cover key takeaways from big bank earnings, whether Netflix NFLX is a buy after reporting, which stock received a 38% fair value estimate increase last week and what to make of Berkshire Hathaway BRK.B possibly offloading its stake in Kraft Heinz KHC.
Episode Highlights
00:00:00 Welcome
00:09:01 On radar: Fed Meeting
00:15:07 Earnings Watch: MSFT, META, AAPL, More
00:23:10 Updates on Megabanks, NFLX, TSM, KHC
00:33:17 Stock Picks of the Week
Read about topics from this episode.
What’s Next for the Fed in 2026?
Morningstar's Company Earnings Hub
Read Sarah Hansen’s full archive.
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Viewers who’d like more information about any of the stocks Dave talked about today can visit Morningstar.com for more details. Read more from Susan Dziubinski and Dave Sekera.
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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 radars for the week, some new Morningstar research, and a few stock ideas. Today on The Morning Filter, we are celebrating our three-year anniversary of the podcast. On today’s episode, we’ll be taking a look back at Dave’s very first stock picks from our first show to see how they’ve done since then and find out whether any of them are still attractive today. And we’re also welcoming a special guest to talk about the Fed in 2026, and we’ll, of course, preview the earnings of some big companies reporting this week. All right, Dave, good morning, and happy anniversary to you.
David Sekera: It’s amazing just how quickly time flies. I can’t believe we’ve been doing this for three years already.
Dziubinski: I know it’s quite something. And we want to thank our audience for being along with us for the ride. And of course, our video producer Scott Halver, who’s also been with us for three years on Monday morning, so we appreciate him as well. All right, so Dave, a couple of weeks ago on the podcast, you said that you expected 2026 to be even more volatile than 2025, and that sure was the case this past week. Stocks fell 2% on Tuesday and then revived, finishing the week down just a little bit. Was the volatility we saw last week all about Greenland and tariff threats, or what other factors might have been in play?
Sekera: Well, actually, before we get into that, I also just want to call out Miami University’s college basketball team. Waiting to see the college rankings come out this morning, but hopefully they’re still going to be in the top 25, which I think, as you and I were talking about, that might be the first time they’ve been in there since 1999. Certainly hoping for a good season, like maybe going back into the ’80s. I believe that’s when they had Ron Harper on the team. So, we’ll be watching closely here, at least at The Morning Filter.
But as far as market volatility, I think this is just going to be a very volatile year. And I think investors are going to have to get used to this kind of volatility, not just once or twice, but over the course of the full year. Now, of course, with President Trump in the White House, it’s just never a dull day. Yes, we had a lot of headlines out there about his desire to acquire Greenland and potentially new tariff threats and all that kind of stuff. But, in my mind, I think that was all more noise than signal. Now, in the 2026 outlook, I did note that trade and tariff negotiations were one of the key risks this year, but I don’t think this was it. I think it’s not going to be until the spring. The US will probably look to reevaluate the USMCA. That’s the trade agreement with Canada and Mexico. And then probably have to restart the negotiations with China in the spring and the summer. Those are the catalysts I’m looking for market volatility from that. What we saw last week, I think, was different.
Now, in the outlook, we also highlighted that the potential for ongoing weakening for Japanese government bonds and the Japanese yen was a key risk for this year. Both have already been on a long-term weakening trend, but the risk is if that weakening were to accelerate. And that’s what we saw last Tuesday. For example, 10-year Japanese government bonds hit 2.35%. Comparatively, they were only 1.00% a year ago. Those bonds have a duration of over 9. What that means is that for every 100-basis-point change in yield, you can get an increase or decrease in the price of those bonds by about 9%. On the longest end of the curve, the 40-year Japanese government bond, that hit 4.25%. Those bonds on Tuesday widened up 23 basis points just that one day. That’s 175 basis points wider than where those bonds were a year ago. Because those bonds have such a long maturity, they also have a very high duration. The duration here is about 22.
So, essentially, that means, for every 100-basis-point change in the yield of those bonds, that’s about a 22% gain or loss. Last Tuesday, based on that yield movement, that’s a 5% loss in just one day. Now, to put this overall in context, globally, the amount of Japanese government bonds outstanding is $8.4 trillion in US -dollar terms. So, any movements there really have some outsize impacts globally overall. We did see a rebound in those Japanese government bonds on Wednesday, and they’ve actually been strengthening ever since, and we see even more strengthening this morning. The real question, I think, for investors is this real buying by investors out there? Or is this probably more likely just Bank of Japan interventions? In my mind, I think it’s just the Bank of Japan interventions for now.
Dziubinski: Dave, talk a little bit about how important this factor of the performance of the Japanese government bonds is really for US investors. Is this something that we should be having on our radars?
Sekera: I’m certainly keeping it on my radar. And there are really two systemic risks that could occur here if Japan and the Bank of Japan lose control of those bonds and the prices. The first would be the potential for the carry trade to unwind. People may not know what the carry trade is, but essentially, a lot of hedge funds would borrow in yen because the interest rates were so low. And then be able to reinvest those proceeds in foreign-denominated assets. So, if it’s no longer cheaper than to borrow in yen, they may look to unwind that trade, which means they’re going to be selling those foreign-denominated assets in order to repay the Japanese-denominated debt. The other one would be solvency. I think the concern here could be the solvency of Japanese insurance companies and banks. Of course, the decrease in bond prices would then lead to lower capital levels at the banks, could then lead to concerns about credit counterparty risk. To some degree, it could be similar to what happened in March 2023. That’s when Silicon Valley Bank went insolvent because US interest rates rose very quickly. They had a lot of long-duration assets on their balance sheet. So, even though they held the maturity in accounts and didn’t actually have to recognize those losses. Everybody knew that there were big holes in their balance sheet. Also, if it’s not a solvency issue, I think it just reduces the ability of the Japanese banks to be able to lend, which would then also impair the Japanese economy. As I think they’re still like the third- or fourth-largest economy in the world, certainly could have some global repercussions just from that alone.
Dziubinski: All right. So, Japan, keep an eye on those bonds. Let’s bring it back here to the US. We have the Federal Reserve meeting for the first time in 2026 this week. Looks like the Fed’s preferred inflation measure, the PCE, came in as expected last week. Dave, given all that, what’s the market pricing in as the probability of a rate cut at this week’s meeting? And then what’s the market expecting through May?
Sekera: Well, as you know, the PCE was really essentially a nonevent. It was just showing inflation, not necessarily getting any better, but also not necessarily getting any worse. And in fact, considering how much the AI buildout boom has bolstered economic growth over the past couple of quarters, I think that was actually probably a pretty good print for inflation. To put that in perspective, GDP came in at 4.4% for the third quarter. The Atlanta Fed GDP now is running at a 5.4% run rate for the fourth quarter. I think I actually would have expected inflation to be higher when we see those kinds of growth numbers in the economy. As far as what the Fed’s going to do, I mean, essentially, it’s a 0% probability of a cut this week. It rises to only a 15% probability of a cut in March, 30% probability in April. It’s not until June that we get above a 50/50 chance. The market’s currently pricing in a 60% probability right now. And I’m still holding to my opinion that I’ve actually had for quite a while. Unless there’s some sort of exogenous shock to the markets, and the markets crater. I don’t think that they’re going to do anything until the new chair takes over. That’s not going to be until May. And then the first meeting thereafter is June. And I think that’s why the market is then pricing in that 60% probability of a cut at that point in time.
Dziubinski: All right. Well, we’re going to talk a little bit more about the Fed in 2026 with our special guest who’s joining us today. And that’s Sarah Hansen. Sarah is a senior reporter with Morningstar and an occasional host of our sister podcast, Investing Insights. Sarah, thank you for joining us from snowy New York. We appreciate your time.
Sarah Hansen: Thanks so much for having me. Super excited to be here.
Dziubinski: Now, you’ve done a good deal of reporting about the Fed. And for our audience members, we’ve included in the show notes an article that Sarah did earlier this month from Morningstar.com. Talking a little bit about expectations for the Fed in 2026, and she’s here to talk about some of them. Let’s start out with talking about the divisions that we saw within the Fed. They really intensified in 2025 and, as you noted in your article, are pretty likely to persist in 2026. Give us some perspective, Sarah. How unusual are these divisions, and why are they happening?
Hansen: These are very unusual divisions, actually, for the Fed. And they’re very unusual for Chair Powell, who is kind of known on Wall Street and in Washington for his ability to foster a consensus among the committee. But over the course of the last three meetings, we’ve seen a bunch of dissents. We saw three of them in December, which is really, really rare. And what that stems from is kind of a muddy economic picture, where policymakers are interpreting economic data in different ways. Starting last year, we saw a labor market begin to cool off while inflation was still above target, thanks in part to those tariffs. And at the same time, as Dave mentioned, growth is looking really robust, and you had equity markets that were soaring. The Fed has one big lever to control the economy, its interest rates, and it can’t impact both sides of its mandate, which is inflation and employment at the same time. And so when you have a muddy picture, the result has been you have one group of committee members who want interest rates to be a little lower to stimulate growth, maybe some insurance against further weakening in the employment picture. And then, on the other hand, you have an increasingly vocal group of members who would rather hold rates steady. They say growth is OK, they say inflation is a bigger risk, and they see improvement coming in the job market. They want to stand pat and stay where they are. And that’s the divide.
Dziubinski: These divisions, are they good or they’re bad, or are they kind of indifferent for the Fed and for the markets?
Hansen: That’s a big “it depends.” It depends on how long they last, honestly, and it depends on what’s driving them. The Fed makes policy decisions by committee. There are 12 voting members at any given meeting. And analysts say that healthy intellectual divisions within that committee are to be expected. And that’s true, and that’s healthy. So long as they’re focused on data and so long as they’re focused on the economic picture that we’re seeing. Divisions kind of stemming from politics would maybe be a little more worrying. An extended division, some folks have argued, might be a little more worrying. Because that kind of has the ability to erode the Fed’s credibility over time. But we’re not there. That would be like a year. A year or two, long, long thing. We’re not there yet.
Dziubinski: Got it. As you pointed out, the Fed is, of course, trying to manage a dual mandate of inflation and employment. Would you expect one factor to outweigh the other in 2026 and really drive policy this year?
Hansen: Powell, over the last couple of meetings, and other Fed officials have been pretty adamant [about] their favorite phrase, “data dependent.” They’re going to remain focused on the data as it comes in. Powell has recently said the balance of risks is a little more even than it was. But that said, they have been focused on the labor market and have said so explicitly over the course of the back half of 2025. Most analysts expect them to kind of keep that, keep that bias as we move forward and be more sensitive to weakness they see in jobs and ready to respond to it. The thing that could change that is improvement in the labor market. If we see things start to pick up later this year, that would really, really raise the bar for future cuts.
Dziubinski: All right. Now we, of course, have a new Fed chair coming in May, when current Chair Powell’s term expires. Are Fed watchers expecting politics to overtake policymaking here? And do you really think that the Fed’s independence is at risk?
Hansen: This is certainly an unusual moment. We’ve had a lot of teasers. We don’t have a lot of information yet. We could see the announcement any day. And then, in the background, we have an ongoing Supreme Court case and other political questions surrounding Fed independence that are complicating the picture. In general, on the next chair, markets are expecting someone with a kind of dovish bent, someone who is likely to support a push for lower interest rates across the board. But as I mentioned earlier, the Fed is a committee-based organization, and this is what analysts really emphasize when they talk about this. There are layers of checks and balances built into the Fed structure that are in place, and they prevent one person, even the chair, from having sort of an outsize influence on policy decisions. And an overly partisan chair could really face a lot of pushback. At the end of the day, they would be one voice among 12. And then the other factor at play there, the other check, is the market. You have instant feedback from the market after Fed decisions. And if investors start to get worried, if they start to get anxious, you could see bond yields spike, for instance, which would be trouble for investors. And so, those are kind of the counterpoints to the Fed independence worries. It’s certainly something to watch. It’s certainly something to pay attention to. But in terms of the urgency, I think we’re not seeing it yet.
Dziubinski: Well, thank you so much for joining us this week, Sarah, giving us some clarity on all of it. We look forward to welcoming you back to the podcast again soon.
Hansen: Can’t wait. Thank you for having me.
Dziubinski: All right, Dave, back to you. We’ve got a busy week of earnings ahead. We have two of the hyperscalers reporting this week, and that’s Microsoft, ticker MSFT, and Meta, of course, META. What’s really going to matter here when it comes to the reports that we’re going to be seeing from all of the hyperscalers in the next couple of weeks? And then, of course, how do all of them look from a valuation perspective as we’re heading into earnings season?
Sekera: From a valuation perspective, Microsoft and Meta are both 4-star-rated stocks. In fact, both of them are trading at a 22% discount to fair value. Although, in my mind, Microsoft is much more of that core holding type of stock. Whereas I think Meta, at least in my mind, is much more of a bet on artificial intelligence. And their capex spending, really, to build out the AI part of their businesses. As far as earnings for this past quarter, I don’t know of any reason why they shouldn’t meet or beat expectations. And I don’t think the market really cares that much about their earnings for this individual quarter, in and of itself. I think the focus for all of the hyperscalers is going to be on their capital expenditure projections.
I put together a chart at the end of last week. I just wanted to give people a bit of perspective on the scale of the amount of growth in those expectations for capex. What I put together in this chart for each of the main hyperscalers is what our current forecast for 2026 capex spending is, what that forecast was in our model a year ago, and then I also show what their capex spending is as a percentage of revenue. For example, if you look at Meta, we’re currently projecting a $78 billion increase over the course of last year as our analysts updated their models. The other thing I want to highlight is just how large of a percentage of capex that is as compared to sales. We’re currently modeling 33% of sales being spent on capex this year. It was 25% in our model a year ago, which actually was also going to be the same as the five-year historical average for capex spending. Similar story for Microsoft. We’re looking for $94 billion of capex spending this year. A year ago, we were only projecting $57 billion. We’re looking at capex as a percentage of revenue, almost 30%. We were modeling 18% last year, which was still above the 16% average historical rate.
Lastly, for Alphabet GOOGL and Amazon AMZN. Again, big increases, especially at Amazon, looking for that to go from $74 billion up to $134 billion in spending on capex, taking their budget up to 17% of sales, up from 10%. And I think there’s still a lot of upside, even to some of our own projections here. I think consensus for Meta, for example, is $95 billion for 2026. And I think the market just generally is looking for all these capex spending numbers to go up even higher than what we’ve already projected for this year. And if we don’t see that happen, I think there could be a lot of disappointment, specifically in AI stocks, many of which are getting to be overvalued. And based on our base case, have probably gotten to be too overextended. So, I think you need to see capex expectations continuing to go up to support the AI story at this point in time.
Dziubinski: All right, well, we have several other companies reporting this week, so let’s quickly run through some of them. Apple AAPL, of course, looks about fairly valued heading into earnings. What are you going to want to hear about more during the call?
Sekera: This stock’s fallen enough from its peak that it’s now down to 3 stars, had been a 2-star stock for quite a while. Really, what I want to hear about is how they plan on incorporating AI into their products and services, why they think that’s going to be value-added to users, how they’re going to monetize it, and, of course, their capex plans as well.
Dziubinski: All right, Tesla TSLA reports this week, too. How’s the stock look from a valuation perspective, heading into earnings?
Sekera: There’s a huge Elon Musk premium priced into the Tesla stock. It’s a 2-star-rated stock, almost a 50% premium to our valuation, based on our base case. In my mind, to justify the valuation here, Tesla really needs to show to the market a new and expanded growth story above the current base case for the electric vehicle business. Some of the things I know our analyst team is going to be listening for is for timing on rollouts for the robo taxi, full self-driving. And I think a lot more focus now on the robotics division, as far as when you might see commercialization of Optimus.
Dziubinski: ServiceNow, which is ticker NOW, has really struggled. Stock’s pretty deeply undervalued from Morningstar’s perspective. And, in fact, we got a question that came into our inbox over the weekend about it. Do you think ServiceNow maybe is one to consider buying ahead of earnings? Could something maybe come out of the report that would boost the stock?
Sekera: We shall see. I mean, no one’s really cared about earnings and guidance on this stock. They’ve been beating for multiple quarters in a row. And as you noted, that stock just continues to keep sliding. It’s currently at a 40% discount. It’s a 4-star-rated stock. I think it’s just overall, the market is still more concerned about how artificial intelligence could potentially displace their business, as opposed to how artificial intelligence can help them improve their products and services, make them more economic value added for their clients. I think it’s just a matter of management needs to be able to convince the market of this. And I think when they do, there’s a lot of upside here. But until then, I think the stock will continue to keep stagnating.
Dziubinski: All right, we have ASML ASML reporting this week, and the stock’s up already nearly 30% in 2026, and it looks about fairly valued, according to Morningstar. What are you going to be watching for here?
Sekera: Well, what happened was TSM, Taiwan Semi, their numbers are very strong. They increased all of their capex spending guidance, which, of course, then boosted our fair value on ASML by 18%. It’s a 3-star-rated stock. We’re already at this point pricing in 2027 and 2028 being very strong years for semi equipment manufacturers. I think for any additional upside from here, we need to hear if there’s going to be other customers like Intel INTC, maybe ramping up their foundry business, but would need some sort of new growth story here to push this one up even further than it’s already moved.
Dziubinski: UPS’s UPS stock has revived a bit since the company last reported earnings. And in fact, now the stock looks fairly valued. What are you going to be listening for in this week’s update?
Sekera: From an economic point of view, I just want to hear how the fundamental business is going from that volume perspective. But for the company perspective, for the stock in and of itself, really looking for operating margin improvement. Also want to listen for any potential discussion of their dividend. As we’ve noted before, our analyst has highlighted that the dividend could be at risk this year. He doesn’t think they’re going to cut it, but based on the amount of free cash flow that we’re looking at, there is certainly that potential.
Dziubinski: All right, now. A recent pick of yours, Colgate-Palmolive, which is ticker CL, also reports this week. Do you still like it heading into earnings?
Sekera: I do, and I don’t. From a valuation perspective, it’s up almost 13% since we highlighted it on the Jan. 5 Morning Filter. It’s a 3-star stock; it’s only at a couple percent discount from fair value. I’m just looking for a return to growth in organic sales, looking for a good mix of volume increases and pricing increases. I’d like to see a rebound in margins. If we could get all of that, and that helps improve the intrinsic value, then it might be a buy again. But at this point, more of a hold.
Dziubinski: All right. Well, let’s pivot over to some new research from Morningstar. We’ll start with takeaways from the earnings reports from the mega banks. What stood out to you, Dave?
Sekera: When you think about the mega banks and really all the banking sector overall, everything that can go right for a bank is going right for a bank right now. You have the steepening yield curve that’s increasing net interest income margins. The economy is keeping bankruptcies and defaults on the lower side. So, charge-offs are relatively low. With the stock market at its highs, you have very high fees for assets under management. Investment banking, trading, both doing fine. Looking for a rebound in mergers and acquisitions this year. That’s going to help bolster them from a fee income perspective as well. Following the results, I know our team made a couple of fair value increases here and there. But overall, I’d say stocks are pretty fully valued at this point in time, based on our outlook.
Dziubinski: All right, last week we saw Intel stock, and this is ticker INTC, was down 17% on disappointing guidance, but Morningstar raised its fair value on the stock by $4 to $32. Any opportunity with Intel today?
Sekera: I don’t think so. It’s a 2-star-rated stock, still at a 40% premium to fair value. And that’s even after the stock had already sold off. In my mind, when I look at the chart and look at how much it has ramped up over the past couple of months, I think it’s gotten caught up in the AI buildout boom, but I don’t look at this company as really being a participant of the AI buildout boom. Looking at their numbers here, fourth-quarter revenue came in at $13.7 billion. That was flat sequentially on a quarter-over-quarter basis, down 4% year over year. Their first-quarter revenue guidance at $12.2 billion at the midpoint. That would be down 11% sequentially, and certainly worse than what we expected.
Dziubinski: Now, Netflix stock, which is NFLX, slipped after earnings. What did Morningstar think of this report?
Sekera: Results all look pretty good. I mean, 17% revenue growth, operating margin expanded by 3 points. But overall, when we look at this stock, we think the market has just overextrapolated the growth that we’ve seen over the past couple of quarters way too far into the future. You look at guidance for 2026, they’re looking for organic sales growth of 11% to 13%, so much lower than what they saw last quarter. They are still looking for more margin expansion of 2 points. Overall, that puts it in line with our estimates, but certainly below what the street was looking for. As you noted, the stock sold off. In fact, I think the stock’s down almost 40% from where it’s peaked. It was a 1-star stock in mid-2025. At this point, with as much as it’s fallen, it’s now a 3-star-rated stock.
Dziubinski: Now, Dave, you mentioned Taiwan Semiconductor earlier, and this is ticker TSM. Put up really solid numbers, great guidance. And Morningstar really raised its fair value estimate on the ADRs all the way up to $428 from $310. Walk us through that big fair value increase and tell us whether the stock is now a buy.
Sekera: I think “solid” is going to be the underestimation of the day here, Susan. I mean, just very positive indications for artificial intelligence spending in 2026. Their 2026 revenue guidance is up 30%. They also provided much better long-term guidance through 2029. With that longer-term guidance, that was really what caused us to raise our multiyear forecast, resulting in the increase in our fair value today. Their capex guidance for this year is between $52 billion and $56 billion. We were looking for only $47 billion before that. And of course, that’s very positive for all of the wafer fab equipment manufacturers, companies like ASML, which we did increase our fair value after the report. Lam Research LRCX is another one that will be a beneficiary of this. To me, it just shows just the sheer amount of demand in order to manufacture semis, specifically the AI semis.
The interesting thing here that our analyst has pointed out is, in his mind, management is usually known for being pretty conservative in the guidance that they provide. So, in my mind, there’s probably even more upside than what they’ve indicated here. The question is, is the stock a buy? It’s a 4-star-rated stock at a 24% discount. This one’s been a pick several times on The Morning Filter over the past few years. The pattern that we’ve seen here is that we’ve noted that it’s been undervalued. We saw the market catch up to where our fair values are. And then the company comes out with earnings and guidance like this. We then put that into our model, raise our fair value to incorporate those new growth dynamics, and still look for further growth ahead yet in this company.
Dziubinski: All right. So at 4 stars, sounds like a buy. One of your former picks, Kraft Heinz, which is, of course, KHC, was in the news last week because a new filing from Berkshire Hathaway BRK.B suggested that the firm would be selling its position in the stock. What does Morningstar make of that news?
Sekera: Well, I mean, first of all, they’re selling. I think what you need to do is take what I say with a grain of salt. Warren Buffett, certainly one of the greatest investors ever, one of the richest men in the world. I’m not. So, like I said, take this with what you. I think there are really two aspects to consider with what’s going on here. The first is going to be valuation. And the second is technically what is that going to do to the stock and how it’s going to trade? From a valuation perspective, we didn’t make any change to our intrinsic value. It’s still a 5-star-rated stock, trades at over a 50% discount to our long-term intrinsic valuation. In perspective, the company’s trading at 8 times trailing earnings, trades at like 10.2 times enterprise value/EBITDA. Pretty low multiples as far as that goes. As far as the technical implications on the stock, they’re selling over 25% of the company’s stock outstanding. It’s really going to depend on how fast do they want to liquidate this position? How much do they care about the price that they’re going to get versus how quickly do they just want to get out of this name?
So I think this is one where [Berkshire CEO] Greg Abel, he just may want to get out of this loser overall. The stock has had a long-term downward trend. It just might be a case of portfolio manager exhaustion, where he’s just telling his trading desk, “Just get me out.” I just don’t want to be in this one anymore. There’s definitely going to be an overhang on the stock until that position is liquidated. From a trading point of view, if you’re a trader, why would you buy this? Why would you bid when you know that as soon as you buy some, there’s going to be more coming out right behind it? I think a lot of people are going to take the perspective of sitting back and letting the stock come to them. Until we find out that they’re done selling, whatever it is that they’re going to sell. And once that happens, I think it should be very well positioned, but it’s definitely going to be an overhang on how this stock trades for months, if not quarters to come.
Dziubinski: Our question of the week from a viewer named Steve is also about Kraft Heinz. Steve wants to know whether the company is a worthwhile long-term holding or is it a value trap, specifically for someone who’s looking for good dividends for the long haul? What say you, Dave?
Sekera: I specifically reached out to [Morningstar director of consumer equity research] Erin Lash with this question in order to get her response. And, in her mind, not a value trap. The company has a portfolio of brands. They lead within the categories in which they compete. The company’s focus on innovation has profitably improved sales over time. Some specific examples that she gave were improvements on the mac and cheese business, the spreads business. Things like Capri Sun and Lunchables have all done very well. Overall, the company maintains a very healthy balance sheet. And it’s one with, as you know, you get a very high dividend yield. So, it’s a stock where you get paid to wait until the market realizes the value that’s here.
Now, as far as whether or not it’s a value trap, I’m just going to run through our model and our forecast. And the investors can make up their own mind. From a revenue perspective, we’re only looking for 1.3% top-line growth here in 2026, averages 2.5% growth from 2027 to 2029. I’d say less than inflation growth this year, kind of inflationary growth the next three years thereafter. From an operating margin in 2025, looks like the company is going to come in at 19.2%. That’s very low. I mean, the company only ever printed lower operating margins in 2022 and 2014. And there were specific catalysts which caused them to have low operating margins those years. If I go back over a further or longer time history, over the past 10 years, that operating margin has averaged 21.9%. percent. It has been low, only 20% for the past three years, which has brought that long-term average down. We’re forecasting 19.7% in 2026 and averaging 20.4% in 2027 to 2029. So, we’re not looking for any big heroic increase in sales, not looking for any J-curve in operating margins. Really, it’s just much more of an ongoing normalization story.
From an earnings point of view, we’re looking for $2.51 for 2025. Looking for that to increase steadily through 2029, getting up to $3.57. So, essentially, a 9% compound annual growth rate. Looking at the company stock trading at 9 times 2025 earnings, 8 times our 2026 earnings estimate. If you think this is a value trap, in my mind, that means that you need to expect that not only is the company not going to grow from a revenue perspective, but you also then have to assume the operating margins are not going to normalize, that they’re going to stay at these low levels for years to come. So, I think it’s one of those ones where you have to have your own view. But just any kind of normalization here makes this stock look very attractive to us.
Dziubinski: Well, Steve, thank you for your question. As a reminder to our audience, keep sending us those questions. You can reach us via email at themorningfilter@morningstar.com. Let’s get to the picks portion of the podcast. And this week, we’re revisiting the first three stock picks Dave ever made on The Morning Filter, and talking about which of them are still attractive buys today. All right, those first three stock picks were Berkshire Hathaway, Amazon, and Tesla. Dave, walk us through how those stocks have done since you first recommended them three years ago.
Sekera: Sure. So, Tesla. I’m sorry, actually, Berkshire, let’s start with that one. That’s been a laggard. It’s up 55% versus--depending on how you want to define the market, but I use SPY here--so, against the S&P 500, that’s up 74% over that same time period. In my mind, I still think that’s actually a pretty good, strong return, the reason being, of course, that the S&P 500 has had very strong returns because of just how much AI stocks you have outperformed over the past couple years, if we’re to pull those AI returns out, it’d be much closer toward what Berkshire has done? Amazon up 145%. That’s close to double the market return. That’s done very well. But really, Tesla up 238%, over 3 times the market return. So, certainly a good call by our analyst team three years ago. Having said that, it’s got that huge Elon Musk premium in it. So, really got to be a believer in Elon to be paying those multiples today.
Dziubinski: Let’s go through these three stocks one by one and figure out which ones you still like today as picks. We’ll start with Berkshire Hathaway BRK.B, give us the highlights.
Sekera: Berkshire Hathaway is trading at a 6% discount to fair value. It’s a 3-star-rated stock and, of course, it does not pay a dividend at this point in time. We rate it with a wide economic moat, that economic moat being based on its cost advantages and intangible assets.
Dziubinski: Berkshire looks pretty close to fair value today, and we had Warren Buffett officially step down as CEO at the end of last year. And, of course, there are some questions about what will be next for Berkshire, with new CEO Greg Abel running things day to day. We’ve already seen this Kraft Heinz issue. Given all of that, all of that change, do you still think Berkshire is a buy today?
Sekera: I do. And when I look at Berkshire, I kind of almost look at it as more like an actively managed ETF, but one that has a very high exposure to private equity, which you can’t necessarily get investing in a lot of other ways. I really like that PE exposure, and I think that’s a good way to get that exposure for your portfolio. So technically, yes, it is a 3-star-rated stock, which means that it’s, you know, within the range we consider to be fairly valued. I just know that it’s really close to being that 4-star range. And in fact, I think if it stays here, it probably moves in there. We do have a little bit of a band, you know, when it moves from one to the other, from 3 to 4. And yes, I would certainly prefer to buy it at a greater margin of safety. I think in this case, if this isn’t a stock that you don’t own, it’s something that fits within your own portfolio dynamics, I would certainly be willing to start a partial position here. And then leave some dry powder to be able to dollar-cost-average down if that stock does sell off.
Dziubinski: All right. Move on to Amazon. Dave, walk us through the numbers.
Sekera: Sure. Amazon is a 3-star-rated stock currently at an 8% discount to our long-term intrinsic valuation, another one that doesn’t currently pay a dividend. We rate the company with a Medium Uncertainty and a wide economic moat. And it’s a very wide economic moat. It’s actually one of only two stocks that have four of the five moat sources, those being cost advantages, intangible assets, network effect, and switching costs.
Dziubinski: Amazon looks close to fairly valued as well. Would you say this one’s a buy or a hold at today’s price?
Sekera: Well, based on where it’s trading, it’s right at that border between 3 and 4 stars. So, yes, I would certainly prefer a greater margin of safety. But similar to Berkshire, I think now you could probably go ahead and buy some if it fits within your portfolio dynamics. Again, leave that dry powder so you can dollar-cost-average down if the stock sells off. But overall, the company is still hitting on all cylinders. You have a lot of upside from AWS. That’s its AI hosting platform. I think there’s a lot of upside here. If they can continue to keep getting retail margins moving higher and improve over time. And, of course, we’ve talked about before how we think the advertising business they have is very valuable as well. So, I think this is one, even at that 3-star range, you can start a partial position and dollar-cost-average in to the downside.
Dziubinski: Tesla, as you mentioned earlier a couple of times, is very overvalued today. So, of course, it’s not a pick any longer, but you brought us a swap pick this week, and it’s Palo Alto Networks PANW. Run through the key metrics on it.
Sekera: Sure. It’s a 4-star-rated stock, trading at a 19% discoun. Again, one that still doesn’t pay a dividend, but the reason is, is that they’ve been reinvesting their free cash flow on organic growth and roll-up acquisitions. This is a case where I’m not too concerned about them not paying a dividend. Now, it is in the tech sector, so we rate it with a High Uncertainty. But it does have a wide economic moat, based on its network effect and switching costs.
Dziubinski: We’ve talked about Palo Alto several times on the podcast because it’s from one of your favorite industries, which is cybersecurity. Why do you think it’s a good swap for Tesla today?
Sekera: Well, and I have to admit, it’s not necessarily really a swap per se for Tesla. Of course, I certainly wouldn’t bet against Elon. I wouldn’t take the risk shorting that stock. Palo Alto is going to have a very different risk/reward profile. It’s just that with Tesla being overvalued here based on our base case, I was looking for something that’s going to be in that large-cap growth stock category. And admittedly, it’s very hard to find undervalued, large-cap growth stocks today. There are a couple of others that are undervalued, but this is the one that I’m the biggest fan of today. As you’ve noted, I’ve long been a fan of investing in the cybersecurity industry. It’s an industry where overall spending on cybersecurity is a low percentage of the overall IT budget for companies. But companies have to stay at the forefront of cyber protection. It’s not an area that they can cut costs or scrimp on. It’s just too huge of a negative impact to a company if it suffers from a cybersecurity attack, both in terms of direct costs, just to be able to mitigate and be able to fix those kinds of cybersecurity attacks, but also just huge reputational costs if you suffer from a cyber attack. Now, in this case, the stock has pulled back. I think it’s down about 18% off its highs, which in my mind I think that provides kind of the opportunity to be able to start a position in this one where you are buying it at a pretty good margin of safety, below its intrinsic valuation.
Dziubinski: Well, thank you for your time this week, Dave. Viewers and listeners who’d like more information about any of the stocks Dave talked about today can visit Morningstar.com for more details. We hope you’ll join us next Monday for The Morning Filter podcast at 9 a.m. Eastern, 8 a.m. Central. In the meantime, please like this episode and subscribe. And go Miami University basketball. Dave’s an alum. Have a great week.