Plus, whether investors should underweight stocks today.
On this week’s episode of The Morning Filter podcast, Morningstar’s Susan Dziubinski and David Sekera sift through last week’s employment numbers, discuss the economic and earnings reports to watch this week, and explain how investors should be thinking about their portfolios during what Sekera calls an “eye of the hurricane” period for stocks.
They also recommend stocks to buy and sell during the market calm and share whether Dollar General DG, Dollar Tree DLTR, and Crowdstrike CRWD are attractive investments after earnings.
Episode highlights:
2:11 What New Jobs, Inflation Numbers Mean for Markets
16:40 Should You Underweight Stocks Today?
24:01 An Overlooked Summer Stock to Invest In
26:57 Stocks to Buy & Sell Before the Storm Hits
Read about topics from this episode.
Learn more about Morningstar’s approach to stock investing: Morningstar’s Guide to Investing in Stocks
Read Dave’s latest stock market outlook: June 2025 US Stock Market Outlook: Has the Storm Passed?
Morningstar’s take on CRWD and DG after earnings:
Dollar General Earnings: Results Shine on Same-Store Sales Growth
CrowdStrike Earnings: Vendor Consolidation Drives Upside as Outage Impact Dissipates
Got a question for Dave? Send it to themorningfilter@morningstar.com.
What's next is now at the Morningstar Investment Conference. Register now to get to the source for cutting-edge research, expert insights, and thorough analysis. Get tickets here.
Follow us on social media.
Dave Sekera on X: @MstarMarkets
Dave Sekera on LinkedIn: https://www.linkedin.com/in/davesekera
Facebook: https://www.facebook.com/MorningstarInc/
X: https://x.com/MorningstarInc
Instagram: https://www.instagram.com/morningstar...
LinkedIn: https://www.linkedin.com/company/5161/
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.
Subscribe to The Morning Filter to get notified when we post. We’ll see you next Monday!
Susan Dziubinski: Hello, and welcome to The Morning Filter. I’m Susan Dziubinski with Morningstar.
Every Monday, Morningstar Chief US Market Strategist Dave Sekera and I talk about what investors should have on their radars for the week, some new Morningstar research, and a few stock ideas.
All right, well, good morning, Dave. Before we get to the week ahead, let’s talk jobs. A lot of employment-related numbers released last week. Unpack them for us and what they’re telling us about the economy today.
Dave Sekera: Hey, good morning, Susan. Is it June 9 already? How did we get to be this far into the year already? Well, it looks like it’s a beautiful summer day starting, so let’s go ahead and get going. So the most important number probably last week was the payroll or the jobs number that came out on Friday.
Now, it did come in better than expected, but it was slower than April number. The April number had been revised down. In fact, between both April and March, the combination of those were both revised down 95,000 jobs. In my mind, this just indicates to me that the rate of economic growth is slowing. Why the market moved up as much as it did on Friday, to be perfectly honest, I have no idea. Taking a look more in-depth, the consensus unemployment was 4.2%. It came in right there. Now, the average hourly earnings were higher than expected, coming in at four tenths of a percent. That’s up from two tenths of a percent at the last report.
So you can look at it from two perspectives. From one perspective, some people may say that’s bad just from the perspective of potentially indicating higher future inflation. Me, I’m looking at it as being a good number, just really from the perspective of we still need household purchasing power to get repaired after the high inflation that we had over the past couple of years.
So in my mind, this helps really just kind of restore purchasing power to where it should be prepandemic. Now, overall, just going back toward, you know, largely I’m going to ignore most of these economic metrics that are coming out right now. With just everything that we have going on over the next couple months next couple quarters, I think that these are generally still just more noise than signal. And if you look at the books over my shoulder, the Peter Lynch books, I just remember his quote, essentially stating that if you spend 13 minutes a year on economics you’ve wasted 10 minutes, and I think we’re just in one of those environments.
Dziubinski: All right. Well, even though you think that, Dave, I have to ask you about what’s on the economic front this week because it’s inflation. Is that right?
Sekera: Yes, we’ve got CPI and PPI coming out this week. The question on everyone’s mind is, have tariffs started to impact inflation just yet? Taking a look at the consensus numbers here, headline year-over-year consensus is 2.3%. That would be down from 2.5% last month. Core CPI, the consensus on the year-over-year is 2.8. That’s down from 2.9, the prior report. So essentially, if it comes in hotter than expected, I think that would be a negative for the market just because that keeps the Fed from easing monetary policy anytime in the near future.
However, if it comes in better than expected, I just don’t think it’s going to be meaningful. I think the Fed is going to be on hold until the data comes out over the next couple months, next couple quarters. That’s going to force them to move one way or the other.
Now, one other thing we have going on this week, I believe we have 10-year and 30-year Treasury bond auctions. Typically, I don’t pay attention to these. They just kind of are in the background. But considering we had that weak 20-year auction the other day and that did send the other markets down a bit, I will watch these. I just want to make sure that they go well. I’m really not all that concerned.
In my mind, when I think about the 20-year bond auction, there really aren’t natural buyers of those bonds. So the fact that it was weak isn’t necessarily a current concern. But if the 10s and 30s have any kind of issues with their bond auctions, then I might need to rethink my attitude on that.
Dziubinski: All right, well, let’s pivot over to earnings. We have a couple of companies reporting this week that have been picks of yours in the past, and the first one’s Adobe. So do you still like the stock ahead of earnings, and what will you want to hear about?
Sekera: Yeah, so the big question on Adobe from everyone’s mind is, can Adobe utilize AI to make their products more valuable, or will AI essentially eliminate the need for their products? So the bare case on this stock is that AI eliminates the need for creative cloud. In our mind, we don’t think that’s true. We look at Adobe’s new products, we think they’re gaining traction. They have products such as Acrobat, AI Assistant, Firefly, GenStudio.
Specifically, Dan Romanoff, who’s the analyst that covers the stock, has highlighted Firefly. He thinks that leaves the company very well positioned for AI. In fact, Firefly is at the very early stages of monetization. AI is generating $125 million in annual run, sorry, excuse me … $125 million in run rate for revenue, and Adobe expects that’s going to double by the end of the year. So it’s a 4-star rated stock at a 30% discount. Now, they don’t pay a dividend, but they do have a pretty large buyback program. So it’s one where we still think that, over time, they will end up being a beneficiary of AI.
Dziubinski: Well, yeah, I mean, I certainly hope AI doesn’t eliminate that Adobe suite because I have a son studying graphic design right now in college, so that wouldn’t bode well for his career choice.
Anyway, now we’re going a little bit back into the Wayback Machine for this one. We’re going to talk about Chewy, which also reports this week, and this stock has been a pick of yours in the past. The stock performed incredibly well. It’s up more than 40% this year alone. So what do you think of this former pick of yours today as it’s heading into earnings?
Sekera: Yeah, it’s been a long time since we talked about Chewy. To be perfectly honest, once that stock moved up toward fair value, it just fell off my own personal radar. As you mentioned, we first recommended the stock on the Nov. 27, 2023, episode of The Morning Filter. We reiterated that buy recommendation on the June 10, 2024, episode. And over that time period, we’ve increased our fair value a number of times. But just taking a look at that stock price, it’s far outpaced our fair value increases. I believe it’s up a total of 138%. So while we are a big fan of the company, not so much its stock at this point. In our mind, it’s just risen too far, too fast. It’s now a 2-star-rated stock at a 48% premium.
Dziubinski: Wow. OK, that’s a steep premium. All right, let’s talk about some new research from Morningstar. We’re going to start with a few names that we talked about on last week’s episode that have since reported. And we’ll start with Dollar Tree and Dollar General. Now, Dollar General stock rallied more than 15% after reporting earnings. So what about the report did the market like so much? And what did Morningstar think?
Sekera: We’ve been talking about the dollar stores actually for quite a while. Went back through my notes and it looks like it was March of 2024 that we really started talking about these companies. Now back then we noted that the stocks had been falling from overvalued levels in 2021 and 2022. Those stocks were actually 2-star-rated stocks back then.
So the story that we talked about was how, from a margin perspective, both have been coming under increasing pressure as they were unable to pass through their own cost price increases as inflation went up to their customers. Those stocks have continued to keep falling throughout most of that time period. Until October of 2024, so on the Oct. 14 episode of The Morning Filter, that’s when we first recommended Dollar General. Was I too early to that call? Yes, probably. I mean, the stock did continue to slide from then a bit. But in my mind, that was actually probably an opportunity to start layering in some additional position, as we’ve talked about before.
In my mind, I think you should always start off with maybe like a half-sized position. Leave yourself some room to be able to dollar-cost average down if the stocks fall, which is what happened in this case. Now since our original call, that stock is up 34%. Looks like our thesis is working out. When I looked at our note, our analyst highlighted that top line in earnings for both of these companies are increasing as we’re seeing an increase in same-store sales. We’re seeing an improvement in discretionary items, better margins along with that. And our analyst noted that she does plan to increase our fair value on Dollar General by the low single-digit percentage following the earnings report.
Dziubinski: So meanwhile, Dollar Tree stock sank after earnings, but then it bounced back the next day. So, what maybe spooked investors initially? And what was Morningstar’s take on the report?
Sekera: It might just be a matter that the market was probably disappointed that they did have some higher selling and labor expenses that ended up driving their operating margins down. But in our view, it wasn’t enough to change our long-term assumptions in this case. So we did maintain our fair value at $100 a share.
Dziubinski: And what about tariff risks facing both Dollar General and Dollar Tree, Dave? Can you unpack that for us?
Sekera: Yeah, and that’s also one of the reasons why I prefer Dollar General over Dollar Tree. Dollar Tree faces much higher tariff-related risks. I believe about 40% of their cost of sales are imported with China, of course, being a key supplier. Whereas with Dollar General, I think it’s about half of that only at 20%.
Dziubinski: So then does either Dollar Tree or Dollar General look like a buy today?
Sekera: Well, let’s wait and see a little bit. So they’re both currently rated three stars with as much as, you know, Dollar General popped after, you know, their earnings report. But our analyst did note that she does plan on increasing her fair value. So I’m waiting to see when that comes out, how much she increases that to see if that ends up putting it back into 4-star territory or not.
Dziubinski: All right. Well, CrowdStrike also reported earnings last week. And on last week’s episode, you suggested that CrowdStrike, the stock, could behave like Okta after earnings. And you were right. So explain what happened.
Sekera: Yeah, it’s just really a matter of valuation, not necessarily performance. This is just another case where we thought the stock price had gotten ahead of itself. So the results in and of themselves were solid. It’s just a matter of I think it disappointed the market because the market was trading at such a high valuation. And it was really the same story for both those companies where they came in at too high of a price. Market was slightly disappointed. Both stocks sold off.
I would note that in the case of CrowdStrike, the stock did immediately drop. But then it did recapture some of those losses on Friday. But then again, it’s hard to read too much into that because I think everything was up last Friday. So I don’t necessarily think that was necessarily a big sigh of relief from the company’s perspective, but everything was in the green.
Dziubinski: So then just to confirm, CrowdStrike is overvalued today and it’s not a buy. Is that right?
Sekera: Correct. So it’s a 2-star-rated stock at a 40% premium. So it’s still well above our fair value.
Dziubinski: Let’s talk FMC. Morningstar’s analyst on the stock, Seth Goldstein, issued a new note about the company last week explaining why he thinks the stock is a buy at today’s prices. And we also had a viewer email us about FMC a couple of weeks ago. So seems like a good time to talk about it, walk us through Seth’s case for the stock today, and what Morningstar sees in the company that the market seems to be missing.
Sekera: Yeah, so for people that haven’t been around to listen to some of our prior episodes, let me just give you a little bit of background here. FMC’s profits fell throughout 2023 and 2024 due to inventory destocking. If you remember back in 2022, there were all kinds of supply chain disruptions, all kinds of bottlenecks. And that led a lot of customers to over order as they were trying to get products in the door. So the past two years, in the midst of unwinding all of these excess products that they’ve had, that’s really hit the company’s top line. And then we’ve seen negative operating earnings leverage on top of that.
Now, more recently, management has decided to continue to keep reducing the sales volumes throughout the first half of 2025 in order to really get to the point where we have more of a normalized level as far as like inventory to sales. And that did lead to the shares declining even further here in the short term. Now, I have to admit, this is a stock where we’ve been long and wrong for quite a while. The story is taking a lot longer to work out than what we expected, but Seth Goldstein, who’s the analyst that covers the stock, he’s still holding the line on his valuation. So the stock is at a 55% discount, puts it well into 5-star territory.
So of course the question then is, well, where are we now? So I know on May 15, the company did have an investor conference call. The company said that they were on track to meet their second-quarter and full-year guidance. So I think that will provide a sigh of relief from the market. I know when I look at our own forecast, we forecast that inventory destocking should come to an end in the first half of the year this year. And if we’re correct about that, then sales should start returning more toward normalized levels in the second half of this year. So we’re looking for improved results in the third and the fourth quarter. And then when we look at 2026, we’re looking for the company to get back onto that double-digit growth profit stream going forward.
Dziubinski: Last week’s show, you talked about Scotts Miracle-Gro. It was one of your picks. And you had mentioned that the company was going to be presenting at an investor’s conference and that you were hoping for some good news out of that conference. I think there must have been some good news because the stock did pretty well last week. How’d that turn out as a pick there, Dave?
Sekera: Yeah, you know, we don’t get every call right, but I got to admit this one actually turned out pretty well. So management did provide updated guidance before they made that investor presentation. And in that updated guidance, they provided a pretty positive three-year outlook that includes operating margin expansion through 2027 as well as some adjusted earnings per share guidance that was above the consensus numbers.
Now in our mind, it kind of came out what we were expecting anyway and when we think about our long-term valuation here, so we maintained our $90 fair value estimate. That stock is up 12% since last Monday when we first talked about it, and we still think it still has further room to run. It’s a 4-star stock, 26% discount, 4% yield on a company that has a narrow moat, although being in the basic materials sector, it does have a high uncertainty.
Dziubinski: All right. Well, also last week, you published an updated stock market outlook, and listeners and viewers will find a link to that outlook in the show notes. Let’s talk about it, starting with valuations today. How does the market look from a valuation perspective?
Sekera: Yeah, so the title of my most recent outlook is, Has the Storm Passed? And to be honest, it’s kind of a rhetorical question in my mind. Now, in our prior outlook in May that we published, we noted that the stock market was starting to enter a period of calm. Markets has just been getting increasingly sanguine about the heightened risks that we still have yet to face, but that calm has allowed stocks here to rally over the course of the last month. Now, in my mind, I don’t think this is really just the passing of one single storm, but it feels to me more like we’re in the eye of the hurricane. So following the rally last week, the market’s now trading at only a 2% discount from fair value.
In my mind, I just don’t think that’s enough margin of safety to be putting new money to work today, especially when you consider all the risks that we need to kind of work our way through the next couple of months, the next couple of quarters. Personally, I would like to see a much larger margin of safety.
Dziubinski: So then given that valuation, there’s really not much margin of safety. Are you still suggesting that investors sort of maintain their market-weight positions in stocks? And also, can you remind listeners what you mean when you say “market weight”?
Sekera: Yeah, so at that 2% discount, granted, it’s not enough margin of safety for the risks that we have. But for long-term investors that have the ability to ride through kind of the ups and downs of the market in the short term, we would still look at recommending that market weight. So what do we mean when we say “market weight”? I just mean that you should be at that targeted allocation at whatever percent of your portfolio you have allocated for equities. So if you’re a 60-40, 60% equity, 40% fixed income, I’d say you want to be really close to that 60% allocation right now. And of course, it’s all just determined by the type of investor you are, what your risk tolerance is, your time horizon, your cash flow needs, and all that kind of thing. So again, you need to have your own view on how you want to structure your portfolio. But within that portfolio, I’d be pretty close to that percentage allocation to equities today.
Dziubinski: Now, as you mentioned, your report suggests that the market storm hasn’t yet passed and then investors shouldn’t be lulled into a sense of complacency. Expand on that.
Sekera: Yeah, it’s just when I look at the risks that drove the markets down earlier this year and into the beginning of April, in my mind, they’re still all out there. We still have all of the tariff and trade negotiations that need to occur over the next couple of months.
The rate of economic growth is still slowing. When I look at earnings, I just note that there was a FactSet article I read relatively recently that analysts are lowering their second-quarter earning estimates more than usual. So that could be lining up the market for a disappointment when they start to report. The bond market, we had some volatility there, both in the US and international. Now they’ve calmed down here, but again, that’s still another risk out there.
As far as I’m concerned, I think the Fed is on pause for now until they get data that’s going to push them one way or the other. Unfortunately, when I look at geopolitical risks, they’re not any better now than they were a couple of months ago. Then, of course, lastly, the big question with inflation. What happens with inflation when tariffs start to flow through? How much is that going to kick inflation up? And are people going to think that it is truly just a one-time issue that tariffs flow through? You have a short-term bout of inflation. Then it goes back to that 2% targeted level or is it potential that inflation as it rolls through could end up increasing long-term inflation expectations, which at that point then the Fed would certainly want to fight.
Dziubinski: So given valuations, all that uncertainty, Dave, what’s your outlook for the stock market during, say, the next few months or the next couple of quarters?
Sekera: Who knows? No, seriously. I mean, no one really can predict with any accuracy what the market’s going to do over any next couple of months time frame. It’s just that with all of these risks, I just see that there’s a higher than usual probability that we could see a lot of volatility play out, a lot of downward potential that we could see when there’s negative headlines out there.
So when I kind of think about the risk/reward trade-off, in my mind, if I’m correct and the stock market does have another selloff, you as an investor should probably just want to make sure you have the ability to be able to move back into an overweight position once valuations start to warrant to do that, similar to just when we moved to that overweight position on April 7 of The Morning Filter.
Worst-case scenario, if I’m wrong here, and at that point, if you’re market weight, then you’ll at least be making that market rate rate of return in the equity portion of your portfolio. It’s just that with the market so close to fair value at this point, I just don’t see a lot of opportunities to really generate a lot of excess returns on top of those typical cost of equity returns. So that’s why I’m comfortable with that market weight today, but yet still make sure that you’re mentally prepared that if we do have a nice drawback in the market, you can move back into that overweight position and take advantage of it.
Dziubinski: So then within that market-weight position for a stock portfolio, how do you recommend investors be positioning that today?
Sekera: Yeah, so by style, we would look to overweight value that’s at about a 14% discount to our fair values. And I do think that in the downward market, the value stocks would hold up better to the downside. In our mind, they have much better valuations and they pay much more attractive dividend yields. When I look at the core category, that’s pretty close to the market valuation. So I’d say that’s a market weight.
And then growth stocks are getting to be a little pricey again, trading at 11% premium. So I’d underweight growth in order to pay for that overweight in value. And of course if there is downside adjustment in the markets, I would expect growth stocks probably to correct more to the downside because valuations here are just too high when we come up with our numbers. Let’s take a quick look here by capitalization. So when I look at large- and mid-cap stocks, I would underweight those to just a slight degree and use that principle in order to overweight small caps, which are trading at a 20% discount.
We’ve talked about this a couple of times with small caps. This isn’t a trade. Small caps may not necessarily work for a while at this point. I mean, they are significantly undervalued, but you really need to see an environment where the Fed is cutting the fed-funds rate. You need the economy to bottom out and start moving back up. For the market really to start to want to get involved in small caps. That’s not the environment that I see us in today. That’s probably not until later this year or beginning of next year. I just think that you want to be positioned there because once that starts to work, it can probably work very quickly. It doesn’t take that much of an allocation out of large-cap stocks into small-cap stocks to start moving small caps pretty quickly. And in my mind, if you’re not already overweight those small caps when that starts to happen, you may end up missing it.
Dziubinski: All right. Well, it’s time for the question of the week from our podcast listeners and viewers. Several people who tuned into last week’s episode were surprised that Pepsi didn’t make your list of summer stocks to buy. And it does kind of seem like it could have made your cut. So what do you think of Pepsi stock today, Dave?
Sekera: Yeah, I guess I missed that one. No, all kidding aside, we’ve been watching Pepsi for quite a while. To be honest, looking at the charts, I’d been waiting for that stock really to kind of wash out before recommending it, which we did end up doing on the May 5 episode of The Morning Filter when we first recommended Pepsi.
It’s currently a 5-star-rated stock at a 23% discount, 4.3% yield. The hard thing with Pepsi right now and with a lot of these other food companies and beverage companies is how to really estimate how much of an impact there could be on the company’s long-term free cash flow generation for their food and beverage businesses. And when I look at Brown-Foreman stock, that got hit really hard last Friday.
The CEO was out there making some comments about alcohol sales being under pressure from consumers feeling the pinch of inflation in their pocket. But he also talked about how GLP-1 weight loss drugs and the increased use of cannabis are reducing alcohol consumption. So for something like Pepsi and some of these other food companies, the question is, how much will people taking GLP-1 drugs and depending on how long they take them when they’re on those drugs, will that impact or reduce the long-term demand for Pepsi’s beverages and snacks? So that’s really the big question.
So I did speak with Erin Lash last week. She’s the sector director of our consumer team. And in her opinion, when she thinks about really the long-term assumptions in our model, and looking at the potential number of people taking these GLP-1 drugs and that they’re not on the drug permanently, that they’re on there for a couple of months before they get off, it’s not enough at this point to change our long-term assumptions for a global company like Pepsi. When I take a look at our model here, we’re looking at three-year top-line growth on a compound annual basis of just under 4%. We’re only looking for just under 7% earnings growth over the next three to five years. So in my mind, I think that’s still pretty conservative.
Dziubinski: And what about tariffs and Pepsi, Dave? Any concerns there?
Sekera: Yeah, I read through the write-up over the weekend and I didn’t see anything in there. So I don’t know of any tariff concerns with Pepsi offhand.
Dziubinski: All right. Well, keep sending us your questions at TheMorningFilter@Morningstar.com. And as a reminder, Dave and I will be taping an episode of The Morning Filter at the Morningstar Investment Conference in Chicago on June 24. There’s more information about the conference in the notes section of the podcast, and we hope to see some of you there.
All right, pay attention, everyone. It’s time for the picks portion of today’s episode of The Morning Filter. This week, Dave, you’ve brought viewers some stocks to buy and some stocks to sell. We’ll start with your sells. Those sells are stocks that have rallied hard since the market hit its lows in April, and these stocks look overpriced now. So the first stock to sell this week is Roblox. How hard has this stock rallied, and how overvalued is it today?
Sekera: Yeah, I mean, the momentum on this one has just been crazy. It looks like it’s up about 87% from where it bottomed out. It’s now a 1-star-rated stock, trading at 113% premium to our fair value. So again, huge amount of momentum behind it, but in our mind, it’s just gone way too far. I did take a quick look at our model. So company is growing very quickly. It grew over 20% top line over the past two years. We’re looking at 23% forecasted top line growth this year.
When I look at our longer-term assumptions, we even model in a compound annual growth rate of 16% over the next five years. So essentially that takes revenue from $4.4 billion in 2024 up to $9.2 billion in 2029. Now, I don’t think you can really use PE as a good measure of valuation here. Looks like GAAP earnings are currently negative. They don’t turn positive until 2028. That’s also when we’re looking for the GAAP operating margin to turn positive.
Really, this is a story stock, and you would have to really believe in the long-term growth story to really try and value the stock where it is today. Now, as you can imagine for a company like this, there is a lot of customer churn. There’s a lot of turnover. So every year, the company has to get new customers as the existing customers age out and play less video games on their platform.
So I think what the growth story here is that you would have to believe is that as current gamers start getting older and older, that there’s going to be different ways that they can keep them on the platform and still spending money on this platform. We do model in some of that here, but not nearly enough in order to get to anywhere near where this stock is trading today.
Dziubinski: Yeah, a triple-digit premium to our fair value. You don’t see that very often. So that’s overpriced, all right. All right, so your next stock to sell is Wingstop. And here again, we have a stock that seems perennially overvalued. How much has this stock gone up since the market lows? And what does its valuation look like today?
Sekera: All right, well, this is another triple-digit valuation over our fair value. So 111% our fair value estimate, way into 1-star territory. It’s up, I think, about 69% off of its lows. And we’ve talked about this one in the past on the show. Just in my career, I’ve seen multiple times the markets always seem to overpay for growth stories in the restaurant area. Anytime restaurant concepts are still in their expansion phase, the market just always seems to put way too high of a valuation on it. In this case, I opened up our model, our five-year compound annual growth for revenue is 18% over the next five years. So that takes revenue from $626 million in 2024 up to $1.4 billion in 2029.
That’s really based on a combination of same-store sales growth expectations at the existing units, as well as a lot of new franchises that will be opened every year over the next five years.
So from the same-store sales growth perspective, we’re modeling in 4% to 5%. And then for the average percentage of franchise unit growth of 13% over the next five years. So that would take the number of total units from a little over 2,500 in 2024, all the way up to 4,600 units in 2029. Over that same time period, earnings growth of 20%. It trades at 92 times our 2025 earnings estimate of 405 a share. Even on a forward basis, it’s still 70 times our 2026 earnings estimate of 522 a share. And even with all of that growth we already have modeled in, it trades at 39 times our 2029 earnings estimate. So again, this is one, if you’re buying that stock today, you’ve really got to believe.
Dziubinski: And then your last stock to sell this week is Broadcom. Now, this one seems like an example of a good company but at the wrong price. So how much has this stock risen lately, and how overvalued is it today?
Sekera: Yeah, I mean, that’s just exactly it. I mean, nothing against the company and the performance that they’ve been having. It’s just a matter of that it’s just trading above our fair value. That stock is up 58% from the bottom. So that’s like almost triple kind of the broad market average has gone up over that same time period. And the stock actually was even higher than that before they reported their earnings. The stock did fall 5% after earnings, which considering everything else up on my screen was all in the green, that’s probably not necessarily a good sign for them in the short term here. But even after that pullback on Friday, it’s still well above our $225 per share fair value.
Dziubinski: All right, so then let’s talk about the stocks to buy. This week, they are all names that have lagged the market since it bottomed out, but Morningstar thinks these stocks look attractive. So the first stock on your list of stocks to buy is Bristol-Myers Squibb. Give us an overview.
Sekera: Four-star rated stock at a 27% discount. Nice healthy dividend yield at 5.1%. Company we rate with a wide economic moat and assign a medium uncertainty.
Dziubinski: Now, Bristol stock is in the red this year and is underperforming other drugmakers this year. So what’s behind the performance, and why do you like the stock?
Sekera: Yeah, so Bristol-Myers is down 14% year to date, but they’re not actually alone, Susan. I mean, I took a look here, Merck is down 21%, Pfizer down 12%, Novo Nordisk down 13%. So a lot of this healthcare space has fallen off. Really the ones in my mind, or at least what I checked over the course of the weekend that held up the best, are the biopharma stocks like Gilead, If you remember, that was a stock we recommended in May 2024.
Dziubinski: Amgen is another one that’s done pretty well thus far this year.
Sekera: So I think it’s just a combination of a number of different things. Most recently, we had the most favored nation requirement that the Trump administration is trying to roll out in the pharma space. I think there’s just a lot of unknowns as far as like what RFK Jr. may do as the head of Health & Human Services. Now, our team thinks that these risks are probably overstated on these pharma stocks. We first recommended Bristol-Myers on the May 20, 2024, episode of The Morning Filter, and the stock actually did really well for quite a while since then. It sold off pretty much the past couple of months from where it peaked out. But from our first recommendation, it is still up 12% plus that very large dividend payment that you’ve been getting since the original recommendation.
Story here on Bristol-Myers, they do have a pretty large patent cliff over the next five years. It’s just that we believe the firm has enough new products that will mitigate a lot of the pressures as those other products come off of patent and they face generic drugs. We take it into consideration when I look at revenue. We forecast that it will decline at a 4% average run rate over the next five years, but we think the market is underestimating the drugs that they have in their pipeline for their next generation lineup of drugs.
And I think you also need to look past the 2024 earnings. There was an accounting treatment in there for an acquisition that temporary lowered earnings last year. So when you look at the PE or you look at the earnings of this company, take a look at the 2025 estimated earnings. That’s a much more normalized level of Bristol-Meyer earnings, much higher than what it was in 2024 when they took that accounting treatment. So right now, the stock’s only trading at 8 times or maybe even slightly under 8 times our 2025 earnings estimates.
Dziubinski: All right. Your second stock to buy this week is Northrop Grumman. Run through the key metrics on this one.
Sekera: It’s a 4-star-rated stock, 21% discount, not as much dividend yield as I would prefer, but still 1.9%. It’s a company we rate with a wide economic moat and assign a medium uncertainty. And the stock’s really just essentially unchanged since the market bottomed out on April 8.
Dziubinski: Now, it would seem like Northrop Grumman could benefit from the U.S. Department of Defense streamlining its procurement process. Is that why you like it?
Sekera: Yeah, I mean, there’s a couple of different reasons here. Now, I have to highlight, you know, the stock did sell off after the last earnings release. I went back to my notes from when we talked about it after then. The sales were down 7% year over year and that was really due to slower work on the B-21 bomber as well as they took some hits from winding down a few of their space programs, and then they also booked additional costs of, I think it was, like $477 million to increase B-21 production. So I think the difference between us and the market here is that we expect between 2026 and 2028 that the US government will take delivery of 100 bombers faster than expected and/or even add to that fleet size.
Now, unfortunately, with what’s going on geopolitically, we do see an increase in defense spending really pretty much largely across the globe. Europe, many of the European countries are increasing the size of their defense budgets. Here in the US, it looks like we’ll be increasing our defense budget even further as well. So I think defense contractors in general do have a good tailwind behind them, at least for the foreseeable future. So in my mind, this is an attractive opportunity for investors looking to invest in a defense contractor today.
Dziubinski: And then your last pick this week is a REIT. It’s Americold. Give us the bird’s eye view.
Sekera: Yeah, I mean, the stock is down 20% year to date, and it just has not recovered with the market at all. It’s a 5-star rated stock at a 44% discount, 5.4% dividend yield. Now, like most REITs, most real estate companies, we do not assign it a moat, but it does have only a medium uncertainty.
Dziubinski: And as you mentioned, you know, Americold stock is having a pretty awful year. What’s going on, and why do you like it?
Sekera: So you have to remember this is a specialty REIT, so it is kind of in its own little wheelhouse here. But I would just note it is the second-largest owner and operator of temperature-controlled warehouses in the US. And when I look at this specific part of the real estate sector, it’s not quite an oligopoly, but between Americold and their largest rival, Lineage logistics, they control over 45% of all capacity in North America.
So I kind of like the setup there that between these two, they have enough market percentage that they should be able to control the capacity and margins over the longer term. Now, recently management did lower their guidance, but I think the downside is now already reflected in the stock.
They mentioned that inflation and economic weakness were affecting customer buying habits here and have decreased food production levels here in the short term. But I think this is really much more cyclical, not necessarily structural, and will normalize over time. And when I look at the valuation, it only trades under 12 times funds from operations. So I think it looks pretty attractive here.
Dziubinski: All right, well, thank you for your time this morning, Dave.
Those 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 at 9 a.m. Eastern, 8 a.m. Central. In the meantime, please like this episode and subscribe.