Plus, an earnings season preview.
On this week’s episode of The Morning Filter, Dave Sekera and Susan Dziubinski suggest where to find useful economic data as the government shutdown continues. They also preview earnings season, including what to listen for from the AI giants like Taiwan Semiconductor TSM, which reports this week. Dave’s will be carefully watching the banks this earnings season; tune in to find out why.
They unpack the big agreement between AMD and OpenAI—and the resulting big increase in AMD’s fair value estimate. Find out whether Pepsi PEP and Constellation Brands STZ are still stocks to buy after earnings. And this week’s picks feature 4 stocks to buy before they report.
Episode Highlights
Economic Numbers to Watch
Earnings Season Preview
Latest Takes on AMD, PEP, STZ, More
Stocks to Buy Ahead of Earnings
Read about topics from this episode.
Q4 2025 Stock Market Outlook: No Margin for Error https://www.morningstar.com/markets/q4-2025-stock-market-outlook-no-margin-error
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Susan Dziubinski: Hello, and welcome to The Morning Filter. I’m Susan Dziubinski with Morningstar. Every Monday before market open, Morningstar Chief US Market Strategist Dave Sekera and I sit down to 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. Stocks were down nearly 3% last Friday on news that President Trump was planning to place additional tariffs on China. Now futures look like they’re up this morning. So, hopefully we’re going to see a little bit of a bounceback today. But walk us through what got the market so worried on Friday.
David Sekera: Good morning, Susan. It just kind of seems like everyone forgot about the trade negotiations going on in the background here, which is why in our recently published fourth-quarter outlook, we noted that while the AI buildout boom has been enough to offset the weakness we’ve seen in the real economy, the wild card out there still has been these ongoing trade negotiations.
So, President Trump did what he typically does. He came out swinging last Friday. He announced an additional 100% tariff on Chinese products. This is supposedly in response to China’s recent restrictions on rare earth elements. And he also announced a new export control on critical software. Now, these tariffs aren’t supposed to take effect until Nov. 1. In my opinion, I think this is his way of providing an out if China acquiesces on their recent restrictions.
So, as you noted, we are trading up premarket this morning. There was some commentary over the weekend, which people are reading as him walking back some of this rhetoric. Overall, I would say no one should be surprised. I think you need to expect more of this in the coming weeks ahead as we get closer and closer to that next deadline. I think both parties are going to be using the media to try and bolster their respective negotiating positions as each side continues to keep duking it out in the background.
Dziubinski: We’re still in the middle of a government shutdown, too. So, this week, we won’t be seeing the standard economic reports, including the CPI, due to that shutdown. Are there any economic reports that you’ll be watching this week instead?
Sekera: Am I going to be watching them? Probably not. I’ll let the economists watch these numbers. I don’t think that they’re individually going to be market-moving all that much. But there’s still a lot of alternative data sources out there, specifically a couple of different metrics that are produced and released by the Fed. We have the Empire State Manufacturing Index. That’s just a relative level of general business conditions in New York state. My understanding is any level above zero indicates improving conditions. Any level below zero indicates worsening. We have the Beige Book. That’s just a report on current economic conditions in each of the different 12 districts in the US, the way the Fed breaks the US up. We have the Philly Fed Index as well, just a relative index of business conditions in Philadelphia. And then lastly, industrial production. That just measures the change in total inflation-adjusted value of output produced by manufacturers, mines, and utilities.
I know the economists will be out there watching all of these very closely. And then the other thing going on in the background is The New York Times is reporting that the BLS recalled staff from furlough in order to work on the September CPI report. The reasoning for that is that I guess they need this one in order to calculate the cost-of-living adjustments for Social Security for 2026. So, there are some indications that this one is expected to be released now on Oct. 24, just in time for the next Fed meeting, which will be on Oct. 28 and 29.
Dziubinski: All right. Well, we know you’re not fond of watching economic reports, but we do have earnings season kicking off this week, and we know you enjoy watching that. The market’s going to be closely watching results and forecasts of companies linked to that AI trade. What are you going to want to hear about when it comes to that theme specifically?
Sekera: I mean, the market’s all been about artificial intelligence, I mean, not just the past couple months, but really the past couple months as well as over the past, call it two years. Now, over the past month, we’ve had a lot of new deals that have been announced. For example, we had xAI. They’re supposedly out there raising $20 billion today. That’s going to be used to create a special-purpose vehicle. The SPV then will buy Nvidia NVDA chips, which then rents out to xAI. They’re looking to raise $7.5 billion in equity, $12.5 billion in debt. Supposedly, Nvidia itself is putting in $2.5 billion of the equity for that SPV. We had an alliance announced between Nvidia and OpenAI. So, Nvidia will end up investing up to $100 billion into OpenAI, which is then using that money to help them buy those Nvidia chips going forward.
Another strategic partnership, this one’s AMD AMD and OpenAI. So, AMD will supply OpenAI with their AI chips. And as part of this deal, OpenAI is going to get warrants for up to 10% of the equity of AMD.
We have Oracle ORCL guidance out there increasing their cloud business. That was a business that did $10 billion in 2024. They’re expecting that to grow by fourteenfold up to $144 billion by 2030. And then we also have Nvidia investing $5 billion in Intel INTC equity. Almost feels like a throwaway bid at this point. I mean, $5 billion used to seem like a lot of money, but compared to a lot of these other deals, it really doesn’t seem like all that much.
Overall, it still feels like we’re in the acceleration phase of the AI buildout boom. So, during earnings reports and conference calls, we’ll be listening for updated guidance and outlook from all of the different AI-related companies, updates in capex spending, specifically from the hyperscalers, and compare that to what that capex guidance has been the past couple of quarters. We’ll see if there’s any new press releases on new partnerships or equity investments. To be honest, it kind of feels like if we don’t get some new announcements like that, that might actually take some of the oxygen out of the AI trade because the market now has been conditioned to hear all of these new deals coming out.
Dziubinski: Sticking with the AI theme, we have Taiwan Semiconductor TSM, which is ticker TSM, reporting earnings this week. What are you going to want to hear about specifically from management?
Sekera: Well, and again, this is going to be an early bellwether for AI overall. As far as we know, there’s no reason why revenue and earnings shouldn’t easily beat guidance. I think it’s just all going to be how much do they beat guidance by and then how much are they going to raise their guidance for this next quarter. Any commentary they provide for the AI buildout boom will be closely scrutinized. We’ll want to see if they start giving any commentary regarding 2026 expectations. And then lastly, whether or not there’s any impact to their business from these ongoing trade negotiations and restrictions between the US and China.
Dziubinski: Taiwan Semi has been a pick of yours in the past. Shares are up more than 40% this year. Do you still think it’s a buy ahead of earnings?
Sekera: Actually, this was first one of our picks all the way back on July 31, 2024. Over a year ago, the stock at that point in time was still trading $100 a share. We’ve reiterated this pick multiple times throughout 2024 and 2025, but at this point, that stock is now close to $300 a share. So, I’d say from the point of view of is this an undervalued stock trading at a significant margin of safety from its intrinsic valuation? No, it’s a 3-star rated stock. It’s only a few percent below fair value. But if you’re looking at it from the point of view that you want exposure to artificial intelligence and you really don’t have that much yet, I wouldn’t argue against it.
I mean, at this point, there really aren’t any undervalued AI plays left out there. So, I think for the most part, you know, if you’re investing new money today, you’re going to be investing it pretty much at fair value at best. But I do have to caution investors, if you’re looking at investing in AI today, take a close look at the mutual funds and the ETFs that you might already be invested in. Look to see how much exposure they may already have to Taiwan Semi. It’s not in the S&P 500, but it is in a lot of other indices as well. And just how much exposure you already have to AI in general. If you look at seven of the top 10 stocks by market cap in the S&P 500 and the Morningstar US Market Index are already either AI stocks or related to AI. I mean, that’s almost one-third of the total market capitalization out there. So I think for most investors, if you’re broadly diversified in a lot of these indices. You already have a lot of AI exposure, so just make sure what percent of your overall portfolio that’s going to be and whether or not that’s kind of within your own personal risk parameters.
Dziubinski: Let’s talk a little bit more broadly about earnings season. What are your expectations for companies beyond the AI theme?
Sekera: I think, unfortunately, it’s probably going to be a lot more of the same surrounding the real economy stocks. We’re still looking at the rate of economic growth slowing sequentially, not only this quarter, but really over the next four quarters as well. I think that’s going to weigh on results for any company that’s not tied to the AI buildout boom. Last quarter, we highlighted just how poorly a lot of the commodity chemical stocks did, how those industrial stocks did not do very well if they didn’t have some sort of AI business. The transports all did pretty poorly as well. So I think we’re probably going to still see a lot of that, unfortunately.
Dziubinski: This week, we have the big banks reporting, plus a lot of the regional banks, too. How are you feeling about the health of the banking industry today? And what are you going to be listening for here?
Sekera: I mean, as far as the health of the banking industry goes, everything is just going right for the banks today. We’ve got the Fed easing monetary policy, so they’re going to be paying less for short-term borrowing over time. We’re forecasting the yield curve to steepen. So, we are looking for long-term rates to decline over time, but to decline at a slower rate than short-term rates. So they’ll make money on the long-term holdings that they already have. Plus, they’ll also make wider net interest margins as that spread widens.
Yes, the economy is slowing, but we’re still forecasting no recession. While we still expect bankruptcies and defaults to probably rise over time, that’s not necessarily going to be enough to hit earnings here in the short term.
I do have to caution there are a few red flag warnings out there. DBRS Morningstar, which is our subsidiary that does credit ratings, they’ve noted in the private credit space that they’re seeing a lot of weakness there. A lot of those companies are requiring new capital coming in from their private equity sponsors in order to keep them liquid.
And then in the public markets, we’re seeing some bankruptcies in the background as well. If you’re reading the headlines, you might have heard about Tricolor Holdings. That was a major US subprime lender and used-car dealership. They filed for Chapter 7 bankruptcy in September. More recently now, First Brands Group. That was a major US auto-parts supplier. They just filed for Chapter 11 bankruptcy. Now, there are also a lot of rumors of fraud at both. So, it’s not just necessarily the economic weakness. There are reports that maybe they were double pledging their collateral for loans. So, we’ll see what’s going on here. But either way, it just seems like there’s going to be a lot of losses from both of these bankruptcies that have to get spread around.
Now, overall, they are manageable. But is it an indication that maybe the economy, especially at that lower-income household level, is a lot weaker than expected? What’s that mean for the consumer? It may also just be an indication that lending practices had just gotten to be too loose the past couple of years. It might result in banks and lenders pulling in their credit, especially in the riskier parts of the credit markets, until it’s better understood what’s really going on with these two bankruptcies.
Dziubinski: Now, as a group, bank stocks look pretty expensive. Even your kind of your go-to pick, U.S. Bank, which is ticker USB, is trading pretty close to Morningstar’s fair value estimate. Are there any opportunities among the banks ahead of earnings?
Sekera: U.S. Bank right now is kind of right at the edge of that 3-star, 4-star territory. So, depending on if the market’s up or down 1% or 2%, it’s going to flip between those two star ratings. I would say it’s attractive, but only relative to the rest of the sector. I mean, it’s no bargain like what we saw a couple of years ago. If you remember back when Silicon Valley Bank failed in March of 2023, all of those regional banks, all the banks overall, just got hit really hard, fell deep into undervalued territory. It really seems like that was a long time ago.
But at this point, the sector overall is overvalued. Banks are one of the more overvalued sectors out there compared to the rest of our coverage. I searched, there’s really no 4- or 5-star bank stocks left. There are a few asset managers and some fintech companies in the 4-star range, but for the most part, the sector has already run its race.
Dziubinski: All right, well, let’s talk about some stocks in the news last week, and we’ll start with AMD. Now, as you mentioned earlier in the show, AMD and OpenAI struck a deal, and AMD’s stock finished the week up more than 30% last week. And Morningstar significantly raised its fair value on AMD after the details came out. Unpack the deal for us, Dave.
Sekera: So, really what’s going on is AMD is going to supply AI chips for up to, I think, six gigawatts worth of computing power for OpenAI’s infrastructure. AMD noted that they expect to earn tens of billions of dollars of annualized incremental revenue. The rollout is starting in the second half of 2026.
Now, when you and I have talked about AMD in the past, we’ve always noted that our equity analyst team said that they thought that AMD would end up being the number-two player in AI behind Nvidia. Overall, we think this does validate the technology in AI from AMD. It significantly increases the future revenue and profits. In fact, AMD even hinted at the potential for well over $100 billion in future revenue coming from this. Our team did increase our estimates within our model. In fact, they doubled our estimates for AMD’s AI GPU business in 2027 and beyond. They bolstered that all the way up to $42.2 billion for AMD by 2029. Our prior estimate was $20.7 billion. That did lead us to pretty significantly increase our fair value estimate up to $210 per share from $155.
But aside from all of that, what was really the most interesting aspect part of the deal to me was that AMD is issuing you up to 10% of its equity to OpenAI in the form of warrants. Essentially, what’s going on here is that as the value of AMD stock goes up, as it’s selling more of these AI chips to OpenAI, OpenAI then can use the profits from those warrants in order to help them purchase the equipment from AMD.
Dziubinski: Talk a little bit in general about how Morningstar is thinking about these circular deals. It seems like money is just being exchanged back and forth between AMD and OpenAI, Nvidia and OpenAI, Nvidia and CoreWeave. Is there any cause for concern from an investor’s perspective?
Sekera: I would just note that Brian Colello, who’s the strategist for the technology sector, just published an article on Morningstar.com. I’d recommend for the listeners to this program to go and read that article. He is the analyst that covers Nvidia and a lot of these other chip manufacturers as well. And I think that link should be in the description section below. So, as just a quick synopsis, as far as his takeaway is, he’s keeping an eye on it for now, but it’s not necessarily at a worrisome level just yet.
I mean, to some degree, and I think we talked about this last week, Nvidia has this high-quality problem of having to decide what to do with all the cash that it’s currently making. So, what it’s really doing right now, it’s just investing in what it knows best. There is certainly risk here in the future. If revenue from AI doesn’t grow to the point that it’s going to be able to support all of the debt and equity capital that we see being poured into it right now, certainly a lot of risk in these circular deals. For example, if OpenAI doesn’t make enough money, doesn’t have enough revenue to grow its business enough to keep buying those AMD AI chips. At that point, those warrants may not vest if the stock’s not up high enough, or it may not be enough money to provide that capital that they’re relying on to grow OpenAI. And at that point, it could become a bit of a downward cycle.
Dziubinski: A couple of companies reported earnings last week that we’ve talked about on the show before, including one of your picks, Pepsi, ticker PEP. The stock finished the week up about 6%. What’s Morningstar think of the results? And do you think the stock is still a buy?
Sekera: It had a really nice run after earnings. But even more importantly, the stock actually did very well on Friday when the rest of the market was getting hit. It looked to me a little bit like a combination of, one, a flight to safety, as well as people seeing the value in that stock there. They did beat consensus on both the top and bottom line. Organic revenue was up 1%. It was a low-quality beat because 4% of that was coming from price increases being able to offset that volume decrease. Their margin did contract by 170 basis points to 14.9%. But overall, there was nothing that changed our long-term assumptions here.
So, we did maintain our fair value at $164 a share. It’s currently at an 8% discount. It is a stock that we rate with a Low Uncertainty. That’s enough to still keep it in 4-star territory. A company with a wide economic moat. It’s in the large-value category, so I think it will benefit over time as we see investors rotate out of the overvalued growth category into the value category. And in the meantime, a very healthy dividend yield at 3.9%.
Dziubinski: All right, so let’s talk about another consumer stock that’s been a pick of yours in the past, Constellation Brands, which is ticker STZ. Now, the stock looked flat after reporting earnings last week. Unpack the results here, Dave.
Sekera: I have to admit, this has just been a very disappointing story. You know, we started recommending this stock, I think, just way too early. Overall, we just didn’t expect alcoholic consumption to have fallen as much as it has. And it looks like it may even still be on a bit of a downward trend. Now, that’s hit all of the alcoholic manufacturers across all of the beer manufacturers and the spirits manufacturers.
But for Constellation Brands, they did miss on the top line again. However, they did beat on the bottom line. They’re launching a couple of new products, some citrus-flavored, some nonalcoholic beers, a low-calorie version of Modelo. Overall, that should help to some degree offset some of the lower consumption that we’re seeing out there but still not enough to change our fair value estimate. It looks like we’re forecasting a fiscal 2026, a sales decline of 6%. Looking for adjusted earnings per share of about $11.57. We maintain our $225 fair value.
The question is, are we finally getting to the bottom on this one? I’ll have to admit, we don’t know. And, in fact, no one ever knows if you’re bottoming out until time passes. But here’s what I’m seeing. Taking a look at the charts, it looks like a bottoming process here in the second half of September. The stock did rise going into earnings. That may be indicative that maybe there is a new buyer coming in here, someone that is seeing the value and building a position. The stock did try to rally after the earnings came out at the open. However, someone else used that as a selling opportunity. The stock only ended up 1% on the day. It looks like there is this rotation going on right now. Probably, someone that’s kind of throwing in the towel on this one, just trying to use this bit of a rally to get out of the stock. But it also does look like there are new buyers coming in. That to me is probably a good indication. It’s just a matter of, in the short term, kind of where that weighs out here.
Dziubinski: Given what you’re seeing, maybe it’s bottoming. Given our Morningstar valuation, do you think Constellation Brands is still a buy?
Sekera: At this point, it is trading at a 35% discount to fair value, that is a 5-star-rated stock, pretty good dividend yield at 2.9%. The company’s also using excess free cash flow to repurchase stock here, so since it’s trading at a discount, we think that’s accretive to the equity value over time. It is a stock we rate with a Medium Uncertainty and a wide economic moat. It’s only trading at 13 times our 2026 earnings outlook.
Essentially, it really just comes down to a story of if this downward trend in alcoholic consumption even just stabilizes, much less rebounds, we think the stock looks pretty attractive here. However, I have to acknowledge if this downward trend in alcoholic consumption continues, then it’s probably at best fairly valued.
Dziubinski: Delta’s stock, which is ticker DAL, was up 6% on a better-than-expected forecast for the remainder of 2025. But the stock still looks really overvalued, according to Morningstar. What are your takeaways from Delta’s report?
Sekera: As we talked about last week, there is a very strong tailwind behind the entire airline sector right now. You just have the demand coming from consumers, where we’re seeing preferences for experiences over buying stuff. That’s keeping demand for travel very high here in the short term. Delta noted that they’re actually able to sell a lot more or a higher percentage of premium price tickets. Oil prices are low. That’s keeping fuel costs relatively low. That’s giving them very good margins, very strong earnings. They ended up beating the top line and the bottom line by a lot.
But overall, our long-term investment thesis here is airlines overall still a very competitive business. It’s a business we just don’t see long-term economic moats. So, while they are doing very well here in the short term, Over the longer term, you’d expect capacity to come online to satisfy that high demand. Plus, I’d be concerned about that slowing economy over the next couple of quarters, taking some of the air out of air travel. We do think it is pretty overvalued here.
Dziubinski: All right. Well, let’s stay in the air, Dave, and talk about Boeing, which is ticker BA. Boeing’s CEO suggested that there would be a delay in 777X deliveries. And Morningstar trimmed its fair value estimate by $3 on that news. What are your thoughts on the delay and the stock after the fair value change?
Sekera: I fly a lot less than I used to, but I’d certainly feel much more comfortable if it seems like Boeing could get its engineering act together. But the fair value reduction comes from pushing out our forecast for those plane sales by another six months. Companies can end up probably taking some related charges there as well. So, my opinion with where the stock is today and even having some good tailwinds behind it and its defense business, I don’t think there’s anything to do here. It’s a 3-star-rated stock. Personally, I’d want to see a much wider margin of safety just in case these plane sales get pushed back even farther into the future.
Dziubinski: All right, well, it’s time for our question of the week. This week, the question is from Joseph, who says, Warren Buffett had a quotation about being bold when others were fearful and fearful when others were bold. What are the bold choices in today’s market?
Sekera: Well, I think the actual quote that Joseph is referring to is, “Be fearful when others are greedy and greedy when others are fearful.” Essentially, it’s really just a contrarian approach, just noting that the best investment opportunities out there are when the rest of the markets are panicking, especially when you get to the point to the downside where investors are selling what they can, where there’s still a bid out there, as opposed to what they want to, which are going to be the higher-risk situations where a lot of times that’s pretty much bidless. And so those are falling further and faster than the rest of the market. And I’m looking at today’s market. I think we have a little bit of both going on.
So AI stocks, I think, are where the markets are greedy today. A lot of those too far to the upside, trading into overvalued territory. Yet a lot of other stocks, specifically a lot of the stocks that we call real economy stocks, have really fallen this year as investors have just dumped a lot of these en masse as their results have really tailed off.
If you want to get into some stocks that we consider to be bold choices today, I’ve got three of them for you. First is going to be Lululemon LULU. That stock is down 67% since December 2023. Now, at that point in time, it was a 1-star-rated stock. Year to date, it’s down over 56%. It started this year as a 2-star-rated stock. It’s now fallen into 5-star territory, trades at a 40% discount to fair value. But I would note the results here in the short term are still going the wrong way. We’ve seen increased competition really catching up to it. The growth in the athleisure category seems to have run its course. The combination of the competition and the category not really growing like it had in the past is resulting in same-store sale decreases.
Now, when we look at the stock itself, it’s trading at a pretty modest 13 times earnings. If the company hits our numbers for fiscal 2026, and they’re on the path to hit our longer-term assumptions, the stock probably looks pretty attractive here. So, what are our assumptions for 2026? We’re looking for revenue in the Americas to stabilize as opposed to continuing to decline. Looking for additional big growth in China, up 17%. Looking for rest-of-world growth, pretty strong numbers there as well. And then looking for a margin recovery here in the US, as they wouldn’t have to use as many markdowns and discounts as they had in the past. But I’d also note that if these downward trends continue, and it gets worse before it gets better, then you could see some further earnings deterioration here in the short term, which would then, of course, lead to more downward momentum in that stock price.
Next up is going to be Fiserv FI. It’s a company that provides core processing and services for small and midsize banks. I think a lot of people are very concerned about how artificial intelligence might impact their business going forward. That stock is down 40% year to date. That started as a 2-star-rated stock at the beginning of the year. It’s now down enough trading at a 36% discount to be a 5-star rated stock. I would just note that last quarter during the earnings announcement, management did lower their guidance to the bottom of the range. So, another one where fundamentally it appears like it’s going the wrong way here in the short term, but trading at a very large discount. Another one to keep on your radar for being a potentially bold pick.
Then lastly is going to be HubSpot HUBS. That one’s down 37% year to date. That’s now a 4-star-rated stock trading at a 37% discount. Now they provide cloud-based marketing, sales, customer support, service platforms. But again, another one that I think the market’s very concerned about how artificial intelligence could disrupt their business model. I would just note that this is one that our analyst who covers technology has listed it as one of his top picks in software now that it’s fallen as much as it has.
Dziubinski: All right, well, I’m going to recap Dave’s bold picks for you viewers. We have Lululemon, which is ticker LULU, Fiserv, which is ticker FI, and HubSpot, which is ticker HUBS. All right, so please continue to send us your questions. You can reach us via our email address, which is themorningfilteratmorningstar.com.
All right, so it’s time for Dave’s standard stock picks. You’re getting a bonus, viewers, this episode. Wow. Given that it’s earnings season kicking off this week, Dave’s brought us four stocks to buy before they report earnings. Your first pick this week is Microsoft MSFT. Run through the numbers on it.
Sekera: Microsoft is rated 4 stars. It’s trading at a 15% discount to fair value, not much of a dividend, only seven-tenths of a percent, but it’s a company we rate with a Medium Uncertainty as well as a wide economic moat. That wide economic moat being based on cost advantages, network effect, and switching costs.
Dziubinski: Microsoft looks undervalued according to Morningstar, but why do you think it’s specifically attractive before it reports earnings?
Sekera: Well, I have to note, this is the last of the large-cap AI stocks that we still think is undervalued. I mean, everything else out there, as far as anything being really tied to the AI space in our view, is pretty fully valued, if not getting to be overvalued.
I could definitely see a rotation coming into Microsoft away from a lot of those other names, especially if we were to get any kind of market selloff continuing like what we saw at the end of last week. I think the market would look at Microsoft as being kind of like a safe-haven type of name.
Now, our analyst in the past has noted in his stock analyst notes that Microsoft at the beginning of this year was spending huge amounts of money on capex in order to build out their cloud business. Azure has been growing great guns for quite a while. But with that amount of capex spending at the beginning of the year, he noted that he expects to see acceleration of growth in their cloud business into the second half of the year. So, if he’s right, we should easily beat the numbers for the third quarter. Plus, we could see the company provide higher guidance for the fourth quarter. The combination of both really should help bolster that stock price and help lift it toward our fair value estimate.
Dziubinski: Your second stock to buy before earnings is Salesforce, which is ticker CRM. Give us the highlights.
Sekera: It’s currently rated 4 stars, trades at a 26% discount, has seven-tenths of a percent dividend yield. This is one that we do rate with a High Uncertainty, but it does have a wide economic moat based on its network effect and switching costs.
Dziubinski: Salesforce’s stock is having a pretty tough year. What do we see here that the market’s missing?
Sekera: I think overall we have a pretty differentiated view fundamentally on the company as compared to the rest of the market. As you noted, it’s been not a very good year for the stock. The stock’s off about 28%. And I think the market is just very concerned about how artificial intelligence could potentially disrupt their business model in the future. We’re not nearly as concerned. The company’s already using AI in its products and services to enhance customer value.
Dan Romanoff, who covers the stock, he just notes that he thinks that AI is really part of a feature of their products, not that AI would completely eliminate the need for their services. He noted that last quarter, the results topped the high end of their guidance. Results for the first quarter were also ahead of the top end of their guidance. So as far as we can tell, there’s no reason to believe that they wouldn’t beat again. So, who knows? Maybe this time, the third time is a charm to get the market to come around to our point of view.
Dziubinski: Now, your next stock pick to pick up ahead of earnings is from the healthcare sector. It’s Danaher, which is ticker DHR. Tell us about it.
Sekera: It’s a 4-star-rated stock, 25% discount. Again, another one of these stocks with not much of a dividend yield, only six-tenths of a percent. We rate the company with a Medium Uncertainty. However, we do rate it with a wide economic moat based on switching costs and intangible assets.
Dziubinski: Danaher’s stock is down for the year to date. So why do you like it?
Sekera: The stock got hit last October and then got hit again in January. In July, the company reported earnings. Second-quarter core revenue growth was in line with guidance. Margins a little bit higher than expected. They increased their 2025 earnings expectations by 10 cents to $7.70 to $7.80 per share. But the stock seemed to do a lot of nothing after reporting. I suspect that after getting burned the prior two quarters, I think the institutional investors in this name are probably using this stabilization to maybe scale out of their positions, or they may just want to see another solid quarter before willing to get back in again. I think if we see that solid quarter, that’s probably going to be enough to keep that stock not only stabilized but hopefully moving back up again.
Dziubinski: And then your final pick this week is a REIT focused on healthcare facilities, Ventas, which is ticker VTR. Tell us about it.
Sekera: It’s a 4-star-rated stock at a 12% discount, 2.8% dividend yield. We rate the company with a Medium Uncertainty, although I will caution this is a no-economic-moat stock. But pretty much like most of everything in the real estate sector, very difficult to dig those economic moats, so that’s not necessarily enough to turn me off on this one.
Dziubinski: Dave, you seem to like REITs tied to healthcare like Ventas. Why is that?
Sekera: It’s not so much that I like healthcare REITs, but in an environment where you have slowing economic growth, in fact, slowing sequentially over the next four quarters, I prefer REITs whose tenants are much more defensive in nature. So, personally, I’m still pretty gun-shy about investing in the urban office space. We are still seeing a lot of commercial mortgage-backed securities in distress. Defaults seem to be running higher and higher there. Banks are still doing a lot of loan modifications among the urban office space.
So, for the most part, I just like the slow but steady nature of these more defensive plays in real estate. This is one that should benefit from the Fed easing monetary policy over time. And considering we forecast long-term interest rates to come down over the next couple of years as well, that should lead to lower cap rates, which in turn then increases the present value of real estate overall.
Dziubinski: All right. Well, thanks 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 morning for The Morning Filter at 9 a.m. Eastern, 8 a.m. Central. In the meantime, please like this episode and subscribe. Have a great week.