Plus, the key earnings reports to monitor this week.
In this episode of The Morning Filter podcast, co-hosts Dave Sekera and Susan Dziubinski discuss the latest developments in the Iran war and what investors should be monitoring. The stock market hit new highs last week; the co-hosts cover what drove performance, whether the market still looks undervalued, and if investors are too complacent. They dig into the stunning rally in Intel’s stock this year and its price risk heading into earnings on Thursday. Tune in to find out what companies to keep on your radar this week, hear Morningstar’s takeaways from big bank earnings, and find out whether Netflix, ASML, Taiwain Semiconductor and Johnson & Johnson JNJ are stocks to buy after they’ve reported earnings.
They talk about why the idea of buying stocks and holding them for decades sounds better in theory than it may be in practice. They wrap up with a handful of undervalued stock picks today that may, in fact, be stocks to own for decades.
Episode Highlights
The US stock market hit new highs last week. Do stocks still look undervalued and are investors too complacent?
Whether Intel INTC is likely to sustain its stock price momentum after the company reports earnings this week.
What to watch for in the upcoming results from ServiceNow NOW, Tesla TSLA, and Blackstone BX.
Key takeaways from big bank earnings and reports from Netflix NFLX, ASML ASML, and Taiwan Semiconductor TSM.
Undervalued stocks to buy for the long-term—maybe even for decades.
Read about topics from this episode.
Q2 2026 Stock Market Outlook: Don’t Panic, Readjust https://www.morningstar.com/markets/q2-2026-stock-market-outlook-dont-panic-readjust
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Susan Dziubinski: Hello, 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.
We have two programming notes for our audience this morning. First, we dropped a bonus episode last week featuring Dave and Morningstar Economist Preston Caldwell, and they talked about their second-quarter outlooks. We’re getting some really nice comments about the episode. If you haven’t had a chance to watch it, tune in. Second, we’re dropping another bonus episode this week, probably on Thursday. I’m going to be sitting down with Morningstar’s Director of Personal Finance and Retirement Planning, Christine Benz. We’ll cover several topics that you told us in a recent survey that you wanted to hear more about. Those topics include portfolio construction, international investing, and bonds. Watch for that episode drop wherever you get your podcasts.
Good morning, Dave. We got a lot of comments at the end of the video about your mug. Let’s start today with your mug instead of waiting until the end of the show for you to show it. What do you have for us this morning?
David Sekera: Actually, I just started off with the Miami University mug this week. To be honest, I went through my cabinets, and there just wasn’t anything else really speaking to me. I guess this is my default mug for the day.
Dziubinski: You are so loyal to your alma mater, Dave. It’s impressive. I will point out, Father’s Day is coming up in a couple of months, right? Note to your kids, you could use some new mugs, maybe.
Sekera: We shall see what they come up with. We shall see.
Dziubinski: All right. Back to you.
Sekera: Actually, before we start the show, I just want to talk about a couple of anecdotes that I saw going on in the markets this week. There’s the old saying that history may not necessarily repeat, but it sure does rhyme.
I’m starting to see some echoes of the 1990s tech bubble. There’s a company called Allbirds BIRD that used to make shoes, and they sold their shoe business and announced last week they’re going to use the proceeds from that in order to buy artificial intelligence GPUs and turn themselves into a data center. What does a shoe company know about being a data center? I don’t know, but the stock skyrocketed. It went from about $250 a share up to over $20 a share before starting to retreat thereafter.
There’s one other example I saw too, a company called, I don’t know how you pronounce it, Myseum MYSE. They were a photo and video sharing platform. They announced that they’re renaming themselves, or adding dot-AI, to their name. It really reminds me of the tech bubble. If you remember back then, you had all these companies that would add dot-com to their name and then call themselves an internet business, irrespective of whatever they actually would do, and then the stock would pop thereafter. Again, I’m certainly not trying to call that we’re in a bubble right now, or at the top of the AI tech cycle at this point. But we’re starting to see some of those interesting types of anecdotes out there. My guess is we probably see more of them in the months coming ahead.
Dziubinski: Well, we’ll keep looking for those dot-AIs over the next several weeks. Let’s start this episode with what we’ve been talking about for the past several weeks, and that’s the war and the markets. Dave, give us an update on where things stand as of Monday morning before market open, what’s going on with oil prices, and what you’re going to be keeping an eye on related to the war this week.
Sekera: Right now, I think over the weekend we’ve been getting a lot of mixed messages as far as whether the Strait of Hormuz is still open or whether or not it’s closed again. I think there was an announcement that Iran announced that they’re closing the strait again. I know before that, a couple of ships did pass through. So, really trying to understand what the situation is right now. The stock market didn’t like that. It’s down about a half a percent pre-market open. Of course, oil bounced higher. It’s now in the upper $80s, coming up from the lower $80s, which it had dropped to last week. The price is still lower than where it had been before, but oil is definitely going in the wrong direction. We’re going to need to monitor this over the next couple of days.
The other thing to be aware of is the original truce. I believe that expires in the next couple of days. I know there’d already been discussions of extending that truce, so hopefully we will see that extension. Other than that, if that truce expires and if the conflict reignites, that’s going to send stocks down, oil back up again, but hopefully we’ll be able to get to some negotiation at this point so we can get that in the rearview mirror. Although I still think there’s a lot of volatility this year, still yet to come.
Dziubinski: Despite the ongoing conflict, the stock market hit new highs last week. What’s your take on that, Dave? What’s driving stocks today?
Sekera: Based on what’s going on with oil prices, I am a little surprised by just how far and how fast the market bounced here over the past week. But if you take a look at our valuations, I’m not necessarily surprised. If you remember, in our 2026, we noted that the market was coming into the year trading at a discount. By category, growth was the most undervalued at that point in time. Specifically within the growth category, we called out technology and artificial intelligence stocks as being the most attractive. Yet for a whole host of reasons, we did say that we expected a lot more volatility this year. As such, we recommended investors have a barbell-shaped portfolio, essentially a portfolio that would be in half high-quality value stocks, the other half being in growth stocks, specifically technology and AI.
Thus far, I’d say the barbell is actually working out pretty well this year. A month and a half ago, when the market started selling off, value stocks held up pretty well. In fact, they were in the green while the rest of the market was in the red. Energy, if you remember, we specifically called that out as being undervalued coming into the year. We talked about being overweight in energy stocks all of last year. Those skyrocketed. They were up about 35% at their peak. On the March 30 episode of The Morning Filter, we recommended to investors to start harvesting profits in energy and value stocks, and then use those proceeds to buy more growth stocks, specifically AI and technology, those that had been beaten up the most to the downside. The reason for that on March 30 was that the hedge had worked, and even though the stock market was still falling, we noted there were a lot of indications that the market did want to trade up. Once the conflict subsided and oil prices fell, those undervalued growth stocks and AI stocks are now starting to outperform the value stocks.
Dziubinski: Where does that leave us from a valuation perspective today, Dave?
Sekera: Following the rally, it looks like the market is now only about 3% undervalued, so pretty close to that composite of our fair value estimates. Yet, even that undervaluation is very concentrated. If you look at some of the largest of the mega-cap stocks, those that we still think are undervalued—in this case, Nvidia NVDA, Microsoft MSFT, Broadcom AVGO, and Meta META—if I were to pull those out of our composite calculation, the market’s actually essentially fair value. The rest of the market, away from those four, pretty much trades on top of our fair value estimates. At this point, it’s really those growth stocks, specifically those four, that we see the best value for investors today.
Dziubinski: Do you think there’s some investor complacency or maybe a little bit too much enthusiasm in the market today, especially given not just the ongoing conflict, but the risks that you’ve talked about before?
Sekera: Yeah, unfortunately, I do think that the market really became too complacent, too fast. Having said that, I still think we’re in the stage of that market rally where you want to let that growth part of your barbell continue to work, continue to keep running to the upside, as that is where we see the best value today. As you noted, I think we’re going to still see a lot of volatility over the course of 2026. I expect more ongoing volatility than what we had in the second half of 2025. Highlighting a couple of reasons here: High oil prices are going to boost inflation for at least the next couple of months, if not for maybe even the next couple of quarters. That, of course, is going to lower economic growth. At this point, we really don’t know the extent of those production and supply shutdowns that we’ve seen in Asia and Europe as well. That’s also going to have to work its way through our economy and the global economy as well.
With oil prices being high, and high gas prices at the pump, we have yet to see exactly how consumers are going to react, how much they may pull in the reins here in the short term. We have trade and tariff negotiations. Those were completely overshadowed by the conflict. I suspect those will probably start back up and hit the headlines here later this spring or maybe this summer. I think the Fed’s going to be on hold for the foreseeable future. Interest rates have kind of been in a trading range. We originally had expected interest rates to fall over the course of the year. They’re not necessarily falling like we had originally expected. With inflation staying higher, it might be a while before those start coming down. We’ve talked about the weakening fundamentals in the private credit market. That still has yet to play through in my mind. Taking a look at China, I think the economy there is probably weaker than expected. I think that their economy is accelerating at a decelerating rate. Lastly, you know me, I’m still keeping my eye on Japanese government bonds and Japanese yen, because if those continue to weaken at the pace that they have been weakening, you could see an unwind of the carry trade there.
Dziubinski: Earnings season picks up this week, so let’s cover some of the names that you’re going to be watching. We’ll start with Intel INTC. Bluntly, here’s a stock that’s had an insane year, and it’s only April. It’s up 85% year to date, and it’s trading at more than twice Morningstar’s $32 fair value estimate. What’s going on with Intel, and what are you going to be listening for from the company?
Sekera: To be honest, I think we’re just trying to figure out what the market is seeing or what the market is pricing in that we’re not. As you said, that’s been a gigantic move for a large-cap company that quickly. I think it’s up over 250% in the past 52 weeks, with a huge portion of that move just in the past couple of weeks alone. I did chat with Brian Colello. He’s our equity analyst and the sector director for technology. In fact, I believe he’s the sector strategist. He thinks that this stock move is being driven more by momentum coming from positive news than any real change in the long-term fundamentals or the long-term forecast for the company. In his mind, he thinks the market is overextrapolating too much of the short-term growth dynamic, too much and too far into the future.
Some of the news that he pointed out that’s been boosting the stock: Yes, there is a shortage of server CPUs out there that will be a benefit to Intel over the next couple of quarters, but to some degree, that’s also going to be offset by weakness that we’re going to see in their PC business. A lot of optimism out there about some new foundry deals that they’ve been talking about, but Brian says he already has that captured in his model. Lastly, I think the big thing we’ll be listening for is any more details regarding the announcement of their partnership with Elon Musk’s Terafab project. At this point, the details have been pretty lacking, so we need more details before we can really incorporate that into our model. Maybe we see some fair value increase from there. In our mind, with where that stock is trading, it is just way too high compared to our fair value today.
Dziubinski: Even if there might be a fair value move after earnings, it’s pretty fair to say that there’s still a lot of price risk baked into Intel’s stock, right?
Sekera: If you talk about price risk, that’s going to be the understatement of the day. I did take a look at the Intel May option contracts. The implied volatility in that 30-day contract is 75. When you think about what that means in that contract, that implied volatility equates to an expected one-month move of plus/minus 21%. We could see a big surge in that stock, or we could also see a big hit in that stock. We’ll wait and see what those results are and how the market considers whether or not they’re really growing as much as the market is pricing in today.
Dziubinski: Well, time will tell with Intel. ServiceNow NOW stock is down about 37% this year, and it’s trading way below Morningstar’s fair value estimate of $165. What are you going to want to hear about when the company reports this week? Can management say anything that could lead to a pop in the stock price?
Sekera: Of course, we want to hear about how the company is doing fundamentally and how their quarterly results were. But I think what we really want to hear more about, and what the market wants to hear more about, is what their medium and long-term strategy is and how they’re going to be able to compete against artificial intelligence over the long term. The market wants to see specific evidence that the company is using AI to improve their products right now, that they’re creating more economic value for their clients, and that the clients are recognizing that economic value. The other thing that we’re going to be listening for—and it may not necessarily be this quarter, but at some point in time—I think the company’s also going to have to talk about how they may have to change their pricing model for their business going forward.
The pricing models today are mostly seat-based, so just charging based on the number of users. The concern is that as AI makes companies more efficient over time, they may need less seats. This company, and I think a lot of these software companies, are going to have to change their pricing model to be able to capture that added economic value that they can bring using artificial intelligence. In this case, I think it’s going to be something like a seat-based model, but they probably need to add some sort of usage fees, maybe by token, in order to be able to charge for that economic value that they can add using AI within their own products.
Dziubinski: Now, Tesla’s TSLA stock is down this year, and given how volatile that stock is, one can only guess how it will move after earnings, but Morningstar assigns Tesla’s stock a $400 fair value, and it’s trading right around that today. What are you going to want to hear about here during the earnings call this week?
Sekera: Yeah, I didn’t think about it. I guess I should have looked at the implied volatility for Tesla, too, to see what the market’s pricing and for how much of a move this week. Again, we’re going to want to hear about the quarter and how their EV-auto sales are going. Like ServiceNow, I think the more important part of the call isn’t necessarily how the company’s been doing, but trying to understand the growth dynamics and the other parts of Tesla’s business, which I think are becoming even more important than just the EV sales. Any updates on the robotaxi business, specifically any changes in timelines for rolling the robotaxi out into new cities, and whether or not they’re going to be able to start removing the safety drivers from those robotaxis. That’s a really big portion of the valuation of this company going forward.
We’ll want to hear more about the energy generation and storage business, and an update on the number of deployments there, an outlook on the ramp-up of the new plants in order to be able to support the products. Similar to Intel, I want to hear more details about the Terafab JV and really what’s going on. I mean, what’s underlying this whole joint venture is that the company is trying to shift so that they can internally source more of their own chips as opposed to having to rely on outside vendors. I think this would be a strategy kind of like the battery business, where they’re bringing this in-house. Lastly, I think we all want to hear any commentary on timing for the IPO of SpaceX. I think a lot of Tesla shareholders are also hoping that maybe there’ll be some shares that could be allocated to existing Tesla shareholders to be able to purchase that stock when it does IPO.
Dziubinski: Alternative asset manager Blackstone BX also reports this week, and Blackstone was a pick of yours earlier this year. The stock has come back up and done pretty well during the past month, and now it’s trading just below Morningstar’s $145 fair value. Blackstone has a sizable amount of management fees tied to private markets. Given the challenges we’ve seen with private credit specifically this year, I’m assuming that’s what you’re going to be listening for here, right?
Sekera: There are a couple of different things. Here’s another one that I actually should have looked at, the implied values. I imagine it’s going to be a lot larger now than what volatility has been in the past for this company. As you noted, the stock is up 17% from where we recommended it, putting it solidly in 3-star territory. It no longer has that margin of safety that we would look for to recommend that stock.
Of course, as far as private credit goes, where there’s smoke, there’s fire, and there’s been a lot of smoke regarding private credit. We’ve talked about how I think there are a lot of losses that are going to need to get recognized in the private credit sector itself. The other thing, and maybe we hear more about it on this call, is that if private credit is taking hits and we’re seeing those positions get marked down, it also means that a lot of those private equity positions that they have—granted, those will be in different funds—probably aren’t necessarily worth where they’re marked on their books as well. We could see a lot more discussion and a lot more questions to management regarding how those positions are being marked and whether or not there’s some downward skew in those valuations in the private equity part of their portfolios as well.
Dziubinski: Turning into some new research, we’ll cover the reports that came out from the big banks last week, including JPMorgan JPM, Bank of America BAC, and Citigroup C. Seems like the results were pretty uneventful, right?
Sekera: Exactly. I think the main takeaway from the banks here is that the results were boring, but for banks, boring is beautiful. When banks’ earnings are interesting, that’s usually a pretty bad sign for what’s coming next. We had talked last week about a number of different concerns I had coming into the bank earnings. Fortunately, it doesn’t seem like any of those concerns came to fruition. Overall, the bank stocks are fairly valued compared to our valuations. Guidance for net interest income is essentially in line with expectations. Banks are really not seeing any change in consumer behaviors regarding either spending or delinquency rates just yet. Their private credit exposures are pretty manageable. Investment banking was off to a very strong start for the year. We’ll see if that can continue to keep at that kind of growth rate.
Other than that, they noted they had great trading revenues driven by all the market volatility that we had in March, but that’s one of those things that’s going to be one-time in nature, so that doesn’t change your longer-term valuation. Book a couple extra pennies per share for that, but not necessarily anything. We’re going to increase our longer-term valuations up. Bottom line, I would say boring results, really no significant updates, so nothing to see here.
Dziubinski: Good. Now, Netflix NFLX stock pulled back after the company reported earnings last week, and Morningstar held its fair value steady at $80. What did Morningstar make of the results, and is the stock attractive after earnings?
Sekera: This one is interesting in the fact that both their revenues and their margins both looked pretty good. In fact, I think they exceeded the company’s prior guidance. The problem came when they were discussing their forward guidance for the rest of the year. Essentially, what management said is that they’re tracking what their prior outlook had been. Considering they just raised prices, which was a surprise to the marketplace, their market was then expecting those higher prices would let them increase their guidance to account for that price hike. If they didn’t increase their guidance, the market is assuming that implies that the rest of the underlying business is a little weaker than what people were expecting.
As such, that stock got hit pretty hard. I think it dropped about 10%. Last I checked, it’s still trading at $97, still well above our $80 fair value. In my mind, I think this stock probably has further to fall as the market prices in, more like low double-digit growth rates as opposed to mid-teen growth rates.
Dziubinski: Taiwan Semiconductor TSM stock was down a bit after earnings last week, which seems like kind of a ho-hum market response. Morningstar held its fair value on the stock at $428. What’s the outlook for Taiwan Semi from Morningstar’s perspective, and is the stock a buy?
Sekera: Similarly, this is another one that had very strong results for the quarter, and they kept the same guidance, but what they did is they tightened that guidance range. I think that’s why the market was disappointed. The top end of the guidance range was unchanged. They brought the bottom of that guidance up. What that tells me is that the company has more confidence in their short-term growth rate, but they’re not yet willing to increase that top-line guidance just yet. I think they want to see more on how things are going to play out here over the next couple of months before they raise that top range for the year.
Our analysts also noted that capex is more likely to come in at the top end of the range, just to put their capex spending in perspective. We’re looking for $56 billion of capex spending this year. In perspective, if you take a look at Intel, we’re only forecasting their capex this year to be $14 billion. Yes, stock did sell off a little bit, but again, I think that’s more about not raising guidance range than it was necessarily about this company’s performance for the quarter.
Dziubinski: ASML’s ASML stock pulled back after earnings, even though the company upped its forecast and Morningstar raised its fair value estimate on ASML to $1,400 from $1,170. Talk about the market’s response to the company’s results and how that differs from Morningstar’s.
Sekera: I think the reaction here was more about the valuation than it was necessarily about the performance. If you look at the market price, where it came down to, it took it right to almost exactly where our updated fair value is. From my point of view, nothing to do as far as buying or selling the stock at this point. The takeaway here is that the fundamentals are still very strong. The fair value increase was from a slight increase in our medium-term and longer-term expectations, not necessarily a change in the short-term expectations, but this company is very highly valued; it trades at 45 times our 2026 earnings estimate, that does drop to 34 times our 2027 earnings estimate. This is one where you’re going to have to keep a pretty close eye on the guidance and those growth numbers, just to make sure that they’re able to meet the type of expectations that the market is currently pricing into that stock today.
Dziubinski: Now with both ASML and Taiwan Semi increasing their forecasts, does that tell us anything about what we might hear from their customers later this earnings season?
Sekera: Yeah, unfortunately, I think it’s really too hard to garner too strong a takeaway at this point in time. Yes, both reported good quarters, both have continuing strong outlooks, but it seems to me like the outlooks weren’t necessarily as strong as the market was hoping for. I think the market was hoping for some increases in the top end of those guidance ranges.
For the artificial intelligence semiconductor companies, I think we should probably expect the same kind of thing; going to report very good quarters, going to report ongoing good outlooks, but at this point, not necessarily sure we’re going to see if those outlooks are guided up. We have a massive wave of AI capex spending coming this year, but considering that all of that was announced last quarter in the 2026 earnings outlooks, I think the market has already got that priced into the earnings for the year. I think most people are waiting to see just how quickly that comes to fruition and whether that’s something that comes through the results earlier in the year, maybe here in the second quarter, or if it’s more in the second half of the year.
Dziubinski: Morningstar raised its fair value estimate on Johnson & Johnson JNJ after earnings. We bumped it up from $182 to $190, but the stock’s still trading well above that new fair value.
What drove the fair value change, Dave, and given how pricey the stock is, how should investors be thinking about J&J today?
Sekera: Specifically, the fair value increase was based on greater confidence our analyst has in the rollouts of two new drugs—one being for bladder cancer, and another for immunology. I do want to highlight, if you look at the chart here, it looks like J&J stock has run out of steam. There’s a huge amount of momentum over the course of last year and coming into this year, but that momentum looks like it started to run out of steam at the beginning of February. As you noted, this is one that trades well above our fair value, even after that slight fair value increase. As much as I still think J&J is probably a core holding for a lot of people’s portfolios, now is certainly not a bad time to lock in some profits. That way, if the stock does pull back, you’ve got the dry powder to be able to dollar-cost average, buy some back cheaper, and get back to whatever your hold position size is.
Dziubinski: Let’s move on to our question of the week. Now, as a reminder, the best way to get your questions to us is via our email, which is themorningfilter@morningstar.com. This week’s question is one that actually came in during the webinar that Dave and Preston did a couple of weeks ago, and we thought this would be a good question that would be of interest to The Morning Filter’s audience. The question is: Can you share some high-quality compounding stocks that can be bought and held for decades?
Sekera: I think as an investor, you need to be really careful when people talk about buying and holding. In my mind, it’s not necessarily buy and hold, but it should be buy and manage. What I mean by that is once you’ve bought a stock, it’s not game over; you just buy it, and you just leave it there. I think you need to monitor those positions going forward and then adjust those position sizes as prices or valuations change. Over time, once you’ve bought a stock based on a specific investment thesis, you need to monitor if that investment thesis is coming to fruition or if there might be anything that causes that investment thesis to change over time. The market’s always moving. You always have changes in valuations. Depending on how much a stock moves from that fair value, you can always buy more if it dips too far.
When it moves up too far to the upside, you can always scale out of some of your position to be able to capture those profits. Of course, you need to monitor what’s going on with the industry dynamics of the underlying company that you’re invested in and make sure that’s not something that’s going to change that company’s performance over the longer term.
Dziubinski: Dave, share with our audience the research that you shared with me in the office last week about companies from the past 20 years and 30 years that many investors at that point in time considered to be those “hold for decades” or “hold forever” stocks. Talk about where they are today.
Sekera: What I did was I pulled up the 20 largest stocks by market capitalization from 20 years ago and 30 years ago, and compared that to today, to see whether or not—and if so—how many companies that were the largest by market cap 20 and 30 years ago were still those same stocks in today’s list. It was really interesting looking at a lot of these names that were companies that people would’ve considered to be rock solid 30 years ago. One that really came to mind was like General Electric. That was a company that, back in the day, used to outperform every single quarter, yet that one was a spectacular blowup during the 2007-08 credit crisis. I remember its subsidiary, GECC, General Electric Credit Corp was an AAA rated entity that a lot of people thought was going to go bankrupt during the credit crisis.
That one has gone through a lot of machinations, a lot of breakups since then. You had a number of different tobacco companies that used to be some of the largest market cap companies back then, certainly no longer anywhere near the top 20 list anymore. Some of the big drug companies back then, like Merck MRK and Pfizer PFE, were some of the largest companies, but they haven’t been able to replace some of the drugs coming off patent with new blockbuster drugs. So, those have fallen to the wayside.
Lastly, Intel. If you think about it, 20 and 30 years ago, it was the king of the semiconductor sector. But over the past couple of years, we think they’ve fallen behind in the technology cycle behind some of these other companies like Nvidia, Broadcom, AMD AMD. Another one, Wallets, certainly had a huge run here over the past year, certainly nowhere close to being anywhere near a top 20 market cap company today.
Dziubinski: There were a few companies that you looked at over that past 20- and 30-year time period that have in fact endured. Tell us what they were and if any of them are still stocks that you think investors can maybe continue to hold for decades.
Sekera: If I look at the top 20 largest by market cap over the past 20 years and then the 30 years, there are only four that are still in the top 20 today. Those being Microsoft, Walmart WMT, Exxon XOM, and J&J. These are all probably very good names. They certainly can be core holdings in most people’s portfolios. Based on their valuations today, some of them we do think still look attractive. Some of the others, not so much. For example, Microsoft, and we’ve talked about Microsoft a lot and why we think it’s so undervalued. Again, a 5-star-rated stock, 30% discount, and a company we rate with a wide economic moat. In fact, a very wide economic moat, only a medium uncertainty. That one still looks good to us today from a valuation point of view.
Exxon, of course, had a huge run-up over the past year, specifically in the past month or so, with the rest of the oil sector. That one’s now only at a 3% discount, which puts it pretty close to the middle of our 3-star territory. Again, a company with a wide economic moat. It’s long been our go-to pick among the oil majors, but I would prefer to see a larger margin of safety before you buy a new position in that stock. But if you need some oil exposure in your portfolio, I certainly wouldn’t argue against buying that one today.
The other two, however, we think are overvalued for what we think the long-term intrinsic valuation of those companies is. J&J at a 23% premium is a 1-star rated stock. Again, a wide economic moat, low uncertainty, a lot of very attractive fundamental characteristics for the company from that valuation point of view, but we think it’s just run up too far to the upside in the marketplace today.
Lastly, Walmart, again, another wide economic stock, a wide economic moat stock, medium uncertainty. Fundamentally, it has been doing very well for the past couple of years. But the stock has now doubled our fair value, and trades at 43 times our 2026 earnings estimate. It’s a 1-star-rated stock. In my mind, I think now’s a better time to be taking profits in Walmart than it would be to hold, much less buy it today.
Dziubinski: It’s time for Dave’s stock picks. Although we’ve acknowledged that holding stocks for decades is one of those ideas that’s maybe easier said than done, Dave has nevertheless brought us five stocks that he thinks can be long-term holdings. Now, all of these stocks look attractively priced today. The first pick will surprise no one. It’s been one of those forever type of stocks that Dave likes a lot, and it’s Microsoft. Run through the numbers again.
Sekera: I know viewers of The Morning Filter are probably tired of me hearing me talk about Microsoft. So you know what? I promise this is going to be the last time I talk about it as a buy for a while until there’s really some kind of real fundamental change here. But it’s a 5-star rated stock, trades at a 30% discount to fair value. We rate the company with a medium uncertainty and a wide economic moat, that wide economic moat being based on three of the five moat factors. In this case, the network effect, switching costs, and cost advantages.
At the end of the day, I still think that Microsoft has this portfolio of businesses that will just naturally balance one another out over time, irrespective of how AI plays out over time. On one hand, let’s just go to one extreme. Let’s just say AI does come out, and it wipes out huge portions of companies’ software businesses. If that happens, that means that it’s cloud hosting business Azure and its AI business Copilot, probably are going to have a lot greater growth than what we currently model in. That would then naturally offset what they would lose on the software side. Conversely, let’s just say AI turns out to be a big bag of nothing, and it doesn’t really do what everyone thinks that it can do. In that case, you see a slowdown in the Azure business, you see a slowdown in the growth in Copilot, but you’ll continue to benefit from the traditional business lines that they have on the software side. I really like the natural business that we think they have in their portfolio of products.
Dziubinski: Now, Microsoft certainly is a very different company than it was 30 years ago, and has proven that management has rolled with change very well. What makes you think that it will continue to be an attractive position to maintain over, maybe knock on wood, the next 20 to 30 years?
Sekera: I think you hit the nail on the head there. I think that’s what you see with this company is that they just don’t sit there on their existing products that have done very well. Because of the amount of money they make, they are able to invest a huge amount of money into capital expenditures to be able to continue to keep growing their businesses, and grow their businesses as technology evolves. That’s one of the reasons that we’ve rated this company with that uncertainty rating that takes into consideration how this company has been able to, for the lack of a better way of putting it, really kind of evolve over time, which you don’t necessarily see in a lot of the high technology companies like that. Especially those that are one-trick ponies, that you don’t see that portfolio of businesses.
Dziubinski: Speaking of a portfolio of businesses, your next pick is Berkshire Hathaway BRK.B. Give us the key metrics.
Sekera: Berkshire currently trades at a 7% discount. It’s a low uncertainty stock, so that’s enough to put it in the 4-star territory. It doesn’t currently pay a dividend. We’ll see if that ends up changing over time. It’s a company we rate with a narrow economic moat based on cost advantages and intangible assets.
Dziubinski: Dave, why do you think that a Berkshire Hathaway without Warren Buffett at the helm is a company that can endure, and a stock that can still be a solid long-term holding?
Sekera: I’d say to some degree, our analyst team is pretty confident that the company will still be run in the same style going forward as it was run by Warren Buffett. When I’m looking at this stock, you have to realize you’re not buying a stock in a company per se; you’re really buying a share in an existing portfolio. I reached out to Greg Warren, who’s the analyst that covers the stock, at the end of last week to get a good idea of exactly what this portfolio is.
Right now, they have a huge cash position. 34% of the portfolio is in cash today, and then the public equity portion of their business is at 28%. Lastly, investing in or owning companies privately is 38%. One of the reasons I like this company at this discount is when you think about the discount overall, a third of their business is in cash, and the cash is worth 100%, or a hundred cents on the dollar.
The public equity portion of their company is going to be based on the valuation of where that stock is currently trading in the marketplace. For example, in that public equity portfolio, 18% of is in Apple AAPL, 14% is in American Express AXP. You’re either buying these companies at a discount or, if you think about it, the real value of the company today is in that private company exposure, and that’s what you’re really buying at the discount. If you think about the way you can value cash at 100 cents on the dollar, value the public equity at where it’s trading in the marketplace, that means you’re buying that private equity or private company portfolio at almost a 20% discount to where it’s in the books today.
Dziubinski: All right. Berkshire’s annual meeting is in a couple of weeks, so maybe we’ll be circling back on that if any news comes out of it. All right, McCormick MKC is your next pick. Give us the key metrics on this one.
Sekera: McCormick stock is trading at a 16% discount to fair value, putting it in 4-star territory, and has a nice dividend yield at 3.6%. We rate the company with a medium uncertainty and a wide economic moat, that wide economic moat being based on cost advantages and intangible assets.
Dziubinski: McCormick plans to merge with Unilever’s UL food business, probably sometime in 2027. Given that, why is this one a good long-term holding, especially when compared with some of the other consumer defensive names?
Sekera: I find their economic moat to be especially attractive today. When I think about the company, they are the leading player in the global market for spices. In fact, they have nearly a 20% market share, which is four times the next largest branded operator. I think having that kind of market share gives them a very good defensible position. When we look at the underlying business, about 60% of it is direct to consumer. The other 40% is to institutional buyers, restaurants, food manufacturers, and so forth. I like the balance here. If you’re going to see an increase in people eating at home more often, I think they’re going to capture the volume that way. Whereas if the economy is doing well and you have people eating out more often, they still capture the shift in people’s eating habits and how that changes over time.
As far as the acquisition goes, Erin, who covers the stock for us, she thinks it makes strategic sense for the company overall. It’s going to increase their scale and their distribution. If anything, it probably makes their economic moat even wider. At the end of the day, they’re able to pick up several high-quality brands, which they can add to their already existing strong portfolio.
Dziubinski: All right. S&P Global SPGI is your next pick. Run through the key stats on it.
Sekera: S&P stock trades at a 22% discount to fair value, putting it into 5-star territory because we rate the stock with a low uncertainty. Not much of a dividend yield here, I think it’s a little bit under 1%. As far as the economic moat goes, we rate it wide. In fact, I think it’s a very wide economic moat based on three of the five moat sources. In this case, network effect, intangible assets, and switching costs.
Dziubinski: We’ve talked before on the podcast about how S&P stock is trading at a rare discount to Morningstar’s fair value this year. It doesn’t really trade at a discount, especially such a wide one, this frequently. Recap why that is and why you think the stock is one that makes a good long-term holding.
Sekera: Largely, I think the stock got pulled down here along with the rest of the software sector, based on the concerns about how AI may or may not disrupt these types of businesses going forward. In my mind, when I think about the rating agencies, I think they have some of the widest moats in the finance business. I’d say there are two major and one minor rating agencies. You have Moody’s MCO and S&P, and then, to a lesser degree, you have Fitch behind those two. When you think about the barriers to entry in the rating business, it’s a very highly regulated business. A lot of different hoops you’d have to go through to try to become a new rating agency. Over the past couple of decades, there’s only been a few new rating agencies that have been able to get through those different regulatory barriers.
Most new issues are typically rated with two, maybe sometimes three ratings. Sometimes it’s just one rating, sometimes it’s all three. Rarely do I ever see new issues being brought to the corporate bond market or even the asset-backed market with four different ratings out there. I think if you have too many different ratings out there, it starts to become too confusing for investors. Some of the other aspects that bolster their moat here are institutional fund managers. A lot of them will actually specify in their portfolio documentation which rating agencies they can use. I know over time they’re trying to change that documentation to any rating agency. Like anything else, it takes a long time to be able to change that documentation. There’s a lot of expense in doing that. Also thinking about S&P’s other businesses, like their index business, again, a very strong moat.
I think it’s one of those where it’s probably less of a wide moat than what you see in the rating business. When people talk about indices, it’s just so inherent in how people talk about the marketplace, talking about the S&P 500 or the Dow Jones. I think it’s really hard to break the barrier to entry and get people to start referencing other indices other than the S&P ones, which are used by a lot of different institutional managers for their benchmarks.
Dziubinski: All right. Your final pick this week is Duke Energy DUK. Give us the elevator pitch.
Sekera: Duke stock is a 3-star rated stock, and only trades at a 2% discount to fair value. It has a pretty decent dividend yield, for being a utility, at 3.3%. It’s a company we rate with a low uncertainty and a narrow economic moat. For the most part, pretty much all the regulated entities are rated with a narrow moat based on efficient scale.
Dziubinski: Duke isn’t a screaming bargain, but you think it’s a good one to own for the long-term at its current price anyway. So why is that?
Sekera: Depending on what you’re looking for in your portfolio, I did want to include at least one utility stock. It’s one of those things that I think, for most people, they like having that dividend yield. They like the stability that you get in that utility business. However, at this point, almost all of the utility stocks are overvalued. The only undervalued ones right now are what I consider to be more story stocks that I don’t think have the right characteristics to be something that you think about as being a buy-and-manage stock. Those are ones that are going to be more risky than what I see here at Duke. This isn’t the first time I’ve recommended Duke. I think it was back in March 2024 that we first recommended this stock. It slightly outperformed the S&P since then, and not even including dividends, just the prices have outperformed since then.
Duke is the largest regulated utility by market cap. We think it’s located in very favorable regulatory environments. One thing I like about this one, with that buy-and-hold or buy-and-manage mentality, is that it is not an AI play like a lot of the other utilities might be, which I think will cause more volatility in those stock prices. In this case, they’re just not in those jurisdictions where you see most of the AI data centers being built out, but they have very good underlying demographic growth. I think a little bit over a third of their business is in North Carolina, another quarter of their business is in Florida, 12% in South Carolina, and the rest of the business is in Indiana, Ohio, and Kentucky. Again, a lot of areas where we see natural demographic growth of people moving into those states as opposed to moving out of those states. Lastly, I know from our analytical point of view, just looking at what the company’s long-term annual earnings growth guidance are, we’re looking for 5% to 7% growth, so that’s what’s incorporated into our model to get us to our fair value price today.
Dziubinski: Thank you for your time this week, Dave. Viewers and listeners who’d like more information about any of the stocks they’ve 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. Have a great week.