Plus, a look at last month’s stock market winners and losers.
In this new episode of The Morning Filter podcast, co-hosts Dave Sekera and Susan Dziubinski cover what’s going on with oil prices, interest rates, and bonds today. They recap the stock market’s winners and losers from May and update the barbell stock portfolio strategy for June. Tune in to find out what to look for in this week’s earnings reports from Palo Alto Networks PANW, CrowdStrike CRWD and Broadcom AVGO and whether Nvidia NVDA, Marvell Technology MRVL, or Salesforce CRM look like stocks to buy after earnings.
They answer a viewer question about a wide-moat stock that’s fallen more than 30% in just a few weeks. And they wrap up the episode with several overvalued stocks to sell this month.
Episode Highlights
00:00:00 Welcome
00:02:08 What’s happening in the oil and bond markets.
00:04:05 Will the Federal Reserve raise interest rates this year?
00:07:13 Which sectors and investment styles performed best and worst in May—and how to structure a stock portfolio for June.
00:12:38 Tech earnings to watch this week.
00:18:10 Is Nvidia NVDA a stock to buy today?
00:36:43 Sell these overvalued stocks.
Read about topics from this episode.
US Stock Market Outlook: It’s Time to Reallocate from Growth to Value
Dave Sekera’s Complete Archive
Got a question for Dave? Send it to themorningfilter@morningstar.com.
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If you would like more information about any of the stocks Dave talked about today can visit Morningstar.com for more details. Subscribe to The Morning Filter to get notified when we post next. We’ll see you on Monday!
Susan Dziubinski: Hello, and welcome to The Morning Filter podcast. I’m Susan Dziubinski with Morningstar.
Every Monday before market open, I sit down with Morningstar Chief US Market Strategist Dave Sekera to recap what’s been going on in the market, talk about what investors should have on their radars for the week ahead, review some new Morningstar research, and share a few stock ideas.
Now we have one programming note this week. If you haven’t yet watched it, be sure to tune into last week’s bonus episode of the podcast. Dave took a deep dive into one of his favorite stocks, Microsoft, with Dan Romanoff, who’s Morningstar’s analyst on the company.
Dave, I was sort of looking at the video on YouTube and through some of the other platforms, and you’re getting a lot of good feedback, so the pressure is on to do more of these, Dave. And viewers, send us an email with the companies you want Dave to talk about. We’re at themorningfilter@morningstar.com.
What were you going to say, Dave?
David Sekera: No, I was just going to say it’s a good change of pace for me to be on the other side of the coin there, being the one that gets to ask the questions as opposed to the one always answering the questions.
What’s Going On With Oil Prices?
Dziubinski: Well, there you go. We like the variety, so do our viewers and listeners. All right, as we’re streaming this on Monday morning, there’s no resolution yet in the Iran war. Let’s talk about what’s going on with oil prices. Where are we right now, and is there anything standing out to you about the oil market today?
Sekera: Well, I mean, they’re just still bouncing around all over the place. At the end of the day, everyone expects that once there’s some sort of resolution, oil prices will drop. No one wants to beat long oil here. At the same point in time, you noted there hasn’t been any resolution. At that point, every time we have these on-again, off-again negotiations, we’re just seeing oil prices bounce around one way or the other. There was talk last week about a 60-day truce that hasn’t come to fruition. This morning, oil prices have moved back up a couple of dollars a barrel. Right now, we’re over at $90/barrel. Still below the highest levels that we hit a month, a month and a half ago, but still we’re 50% higher than preconflict.
When I’m thinking about the oil market, thinking about what’s going to happen, trying to think of what’s going to happen once we get to that truce—Yes, prices will fall. They will fall probably pretty substantially to start, but I don’t think they would fall all the way back to preconflict levels. I think it’s going to take some time for supply chains to normalize. As such, I think the inflationary impacts of these high oil prices are going to be around for at least months, if not several quarters, yet to come. Of course, the other big problem out there, too, is that all of the oil-derived products are still being slowed down in their production, some of them being halted altogether. Again, with these shortages out there, we see commodity chemicals that are based on petroleum, all under pressure. Fertilizers, we all know, prices have been going up there as well. While the market doesn’t really seem to care for now what’s going on in the oil market, as a lot of those shortages really start coming through the economic chain, I think the market will care about it at that point in time.
Will the Fed Hike Rates?
Dziubinski: You mentioned inflation, and it seems like we’re seeing more talk in the financial media about the Federal Reserve possibly raising interest rates in 2026. Dave, what’s your expectation on that? Does the market seem concerned about a possible rate hike this year?
Sekera: Well, the first part of that—actually, to answer your second question, no, the market really just doesn’t seem to be all that concerned. I mean, right now, if you look at the fed-fund futures, the probability the market’s pricing in is a 50% hike, or 50% chance of a hike, or at least one hike by the end of this year. That is lower than what it was last week or the prior week; it was at 66%, but still, to put that in perspective, in early April, the market wasn’t looking for any hikes whatsoever this year. In fact, they were still pricing in a 24% chance of a cut this year. Inflation’s heading higher. It’s going to be going the wrong way for a while as the high oil prices flow through the economy. I don’t think it’s just inflation that’s going to keep the Fed on hold and maybe even pressure the Fed to hike rates by the end of this year.
Looks like the economy is running at a pretty hot rate. Last I checked, the Atlanta Fed GDP now—that’s their measure for kind of the ongoing run rate for the economy—that was at 3.8%. In my mind, if the economy’s really this strong and inflation’s heading higher, not only is there no need to cut the fed-funds rate, there’s probably a much higher probability that they end up starting to hike it. The takeaway here, yes, the stock market is not concerned about monetary policy at this point in time. Everyone’s all still just hyper-focused on the AI buildout boom. Those stocks still continue to be screaming higher here. But yes, at some point, tightening monetary policy will be a headwind against the economy and therefore will also be a headwind against the stock market.
Bond Market Update
Dziubinski: Update us on what’s been going on in the bond market. Any red flags from your perspective, or is the bond market behaving sort of as you would expect?
Sekera: It hasn’t been behaving as I would expect. You would’ve thought that there would’ve been a flight to quality in the bond market, which hasn’t happened, but it’s not raising any real red flags in my mind just yet. The 10-year interest rate actually started rising after the military action against Iran started, got up as high as 4.66%, but it has been recovering over the past couple of weeks. It’s a little bit below 4.5% this morning. Again, that’s still much higher than where it was preconflict, when it was kind of bouncing around that 4% level.
Again, this is another one where, personally, I’m not that concerned about the 10-year Treasury rate as long as it has a 4% handle. But if you start seeing it print with the 5% handle, that’s when I would start to see maybe some institutional investors reallocate out of the equity market into the fixed-income market, specifically those long-term investors that do duration matching; think insurance companies, pension funds, and so forth.
If that starts to happen, I think that’s going to be a big headwind on equities potentially in the second half of the year if interest rates were to continue to move higher in the long run.
May Winners and Losers
Dziubinski: Well, today is June 1. We are closing the books on May. Last month, the US stock market hit new all- time highs. Dave, walk through who the winners and losers were for the month based on style, market cap, and sector.
Sekera: Sure. Just running through the numbers here real quickly. May, overall: very strong month. Really, it’s just continuing that upward momentum that we’ve had since the market bottom at the end of March. Overall, the Morningstar US Market Index, our broadest measure of the stock market, was up 5.2% in just May. Year to date, we’re now up over 11%. I think we’re about 11.25% year to date. Again, I don’t think people would expect that the market would have been this strong with everything that’s still going on with the oil markets. Breaking it down by the Morningstar Style Box, the value category was the big laggard. Value stocks only up a half a percent. Core stocks up a little bit under 4%, call it 3.9%. The big winner was the growth stocks, up 8.25% just this past month.
Of course, that’s mostly those large-cap growth stocks. They were up a little over 6%, mid-caps up a little bit over 3%. Small caps didn’t even make 2%. I think they’re only up 1.9%. By sector, the winners, it was really just all about tech. Tech was almost up 16% this past month, well ahead of the number two and number three sectors for the month. Healthcare and consumer cyclicals were only up 2.6% and 2.1% each. Again, all about tech, all about AI stocks. As far as the bottom three sectors, the energy sector, as we had mentioned. With oil prices generally falling from here, the energy sector is down 6%. That was one that, as much as we liked it at the beginning of the year, we did recommend to start selling it at the end of March. Having locked in those gains, it’s now down 6%, and maybe time to even start taking a second look there. Utilities down 5.0%, and then rounding it out, consumer defensive was down 3.2%. Of course, that was mostly on Walmart and Costco performance after their earnings numbers.
Barbell Strategy Update
Dziubinski: Since you and I last talked on the podcast, you published some updated commentary about your barbell strategy, and there’s a link to that commentary in the show notes for our audience. What’s the update, Dave?
Sekera: Again, this might be one where I might be too early to this call, but personally, I’d rather be early than be late. In my opinion, I think it’s now time to move back to that barbell strategy, essentially having your portfolio balance between half deep-value stocks, the other half in growth, tech, and AI stocks. At the end of March, that was when, on The Morning Filter, I think it was the March 30 episode, we recommended to start taking profits in the value category and putting that to work in growth, tech, and AI.
Since then, growth and AI stocks, I mean, tech stocks overall, have all soared higher. At this point, the valuations no longer warrant the same overweight that we had recommended at the end of March. Some of the technical indicators I’m watching here and there in that tech and AI space, while some of those AI stocks are still running pretty high, a lot of the others seem to be running out of steam at this point.
I think overall the market just became way too comfortable with what’s going on here in the short term, way too much upward momentum in a lot of these stocks getting well ahead of our long-term intrinsic valuations. If I look at the market implied volatility, I mean, it’s declined toward pre-Iranian conflict levels. The VIX, which is that volatility index, last I saw that printed with a 15 handle. I mean, it was double that on March 30. I think it was over 30 at that point in time. Overall, a lot of those reasons that you and I talked about in our 2026 outlook, as far as why we expected a lot more volatility this year, are still unresolved. While we have a huge amount of momentum still going on with growth, tech, and AI stocks, I still think you want to hold a whole bunch of those.
That’s going to be half of your portfolio, just in case they run higher, you still want to be long those stocks, so that way if they move too much further into overvalued territory, you can take more profit there. At the same point in time, I don’t want to be overweight. I think now’s a great time. Lock in that profit that you’ve made. I mean, tech stocks are up over 40% since March 30, and then this way you can put that portfolio back into that position where once again, you can take advantage of that future volatility I expect over the second half of this year.
Nonfarm Payrolls Ahead
Dziubinski: All right. Let’s look to the week ahead on the economic front. We have nonfarm payrolls coming out on Friday. What are your thoughts on that one, Dave?
Sekera: This is one of these ones. I think the media will probably write a lot about it no matter where that number comes out, but honestly, I don’t think anyone in the market right now really cares about where that’s going to print. Overall, I still kind of feel like economic metrics here just feel kind of useless. Everything is just all about the AI buildout boom and those related stocks. A lot of day traders out there just continually to push and pump these stocks higher. Someday the market will care again about the economy and economic metrics, but honestly, that time is just not now.
Earnings Watch: PANW, CRWD, AVGO
Dziubinski: All right. We have a couple of cybersecurity names reporting earnings this week, Palo Alto Networks, which has been a pick of yours, and CrowdStrike. What are you going to want to hear about, and how do the stocks look heading into earnings from a valuation perspective?
Sekera: Both these stocks have just had phenomenal runs thus far this year. They’re both well up over 50% year to date, both of them now hitting new highs, specifically looking at Palo Alto, that’s trading at, last I saw last Friday, $280 per share. That’s well above our $225 fair value, putting it right at that border between 3 stars and 2 stars. It’s still a 3-star-rated stock today, but if it goes up any higher from here, it’s going to trip into that 2-star territory. CrowdStrike trades at a 59% premium, so that puts it well into the 2-star category. In my mind, I think following such a rally, the real big question here is what can they do really to satisfy what the market is pricing in? Or conversely, do we need to start tempering our expectations for the performance and for these stocks? The reason I’m asking this question now is that I’m starting to see a bit of a divergence in the cybersecurity industry, how the performance has been, and how the stocks have traded.
I think it was last week, Zscaler fell pretty hard after their earnings report. The question here is, were those results idiosyncratic to Zscaler or are they more indicative of issues across the wider cybersecurity industry? And it’s really hard to tell. If you look at Okta, that was up 28% after its earnings report. Really, I think we need to get a lot more clarity and really try and dig into the guidance on these two stocks to understand what’s going on in the sector overall, much less the individual performance of those two companies.
Dziubinski: Let’s talk briefly about Zscaler’s results last week since you mentioned it. The stock was down more than 30% after earnings, and Morningstar cut its fair value estimate on the stock to $250 per share. What happened here, Dave, and does the stock now look attractive?
Sekera: This is just one of those situations; the earnings in and of themselves were just fine. Revenue is up 25%, which is a pretty strong growth rate. Operating margins expanded by 140 basis points to 23%. As far as how they did, the performance there was just fine. The problem here was all about guidance. Guidance did come in significantly below expectations. They’re only guiding to a 16.5% growth rate next year, which, of course, for a company that just did 25% this past quarter, has definitely been a big disappointment in this stock. Now, overall, our analysts still think that the signals out there point to ongoing strength in their security business. The question is, could this just be management maybe guiding lower just so that they’re able to more easily beat what expectations are on a consistent basis over the next four quarters, or is this really indicative of a meaningful slowdown in their business?
For now, our analyst thinks that maybe management is sandbagging things a little bit, so he’s still looking for pickup in the business later this year and into next year.
Dziubinski: Let’s get back to the week ahead, then. Broadcom reports this week. How does Broadcom stock look heading into earnings, and what are you going to be listening for on this one?
Sekera: It’s had a pretty good move. It’s still, though, one of the last of the few AI stocks that’s even just a little bit undervalued at this point, trading at a 10% discount. It’s enough that it’s in that 3-star territory, but unlike a lot of the other AI stocks, specifically those commodity-oriented hardware tech stocks, at least it’s still trading at a bit of a discount. In my mind, I still think for investors you want to be invested in those stocks, those companies that are at the forefront of AI technology, not the ones that have been running higher, that have been like all those commodity-oriented companies where we’re seeing shortages in the short term. Those of you who don’t know Broadcom, the company designs custom AI accelerators. That’s a huge business with a huge growth rate. We’re forecasting AI chip sales, with a compound annual growth rate there being over 60% over the course of our forecast period.
It’s really just being driven by increased volumes, not only by one of their main customers, Google, but they’re also ramping up new customers like OpenAI and Anthropic. Took a quick look at our model here. I mean, as far as the top line goes, our five-year compound annual growth rate for revenue is over 37%. A little bit of margin expansion gets you to earnings growing at over 40%, yet the stock’s only trading at 32 times our 2026 earnings estimate. If you look forward into 2027 based on our earnings growth, we’re only looking for that to be 21 times. As long as everything is on track here, as long as you don’t have any big change in guidance, I think it should be very good for this stock price.
NVDA: Still a Buy After Earnings?
Dziubinski: Well, moving on to some new research, Morningstar edged up its fair value estimate on Nvidia to $280 per share after earnings. Let’s spend a few minutes on Nvidia. First of all, Dave, what stood out to you here?
Sekera: Honestly, what stood out the most for me on this one is how little the stock price actually ended up moving after the earnings announcement, how little it moved during the conference call, and really the performance that it’s been ever since. That stock was essentially “unched,” unchanged, but the options market was pricing in a plus or minus well over 5% move. For me, I think it’s interesting that the options market was pricing in a pretty substantial move one way or the other, but yet, where the stock was actually trading was kind of meh.
Dziubinski: How were the results, Dave? Were they kind of meh, too? What drove the fair value increase then?
Sekera: No, results were actually extremely strong. I mean, fundamentally, our analyst team noted that there’s just no slowdown whatsoever in the demand for their AI products. In fact, that demand is still accelerating. The company’s doing everything that it can to try and expand its supply just to meet the amount of insatiable demand out there for its chips. The revenue on a year-over-year basis was up 85%. We’re forecasting this quarter that we’re in right now to be up 95% on a year-over-year basis, and it’s not just their AI chips. I think really one of the most important takeaways from what I read in our note, the company’s revenue base is expanding from beyond just AI into their networking business. Their networking business tripled year over year. And one of the big reasons why we think that’s important is networking, we think, is one of the core components of the company’s economic moat.
Specifically, our analyst team writes that interconnectivity between GPU racks drives superior AI performance. Again, I think that’s one of those things where it really helps not only their economic moat, but it’s also nice seeing them diversify their revenue base away from just their AI products. Looking forward, we’re looking for a rollout of their Vera chip in the beginning of the third quarter. That should then ramp up into 2027 and thereafter. Vera is Nvidia’s first custom data center CPU being built specifically for agentic AI. I think that was part of the reason that we increased our fair value to $280, but I think we also just have even more and more confidence in the short-term and the medium-term company forecasts, and overall, still no change to our long-term forecast. It was really that short-term and medium-term increase in the estimates that led us to that fair value increase.
Dziubinski: Let’s do a real quick jargon check here, Dave. What’s the difference between a GPU and a CPU? You mentioned both of them.
Sekera: Yeah. Again, I’m not a tech analyst, so the way that it was explained to me was that they call the GPU the brain power. That’s the part that’s actually doing all of the math behind the scenes. That’s what’s doing the actual AI model inference. Whereas the CPU, they call that the control system. That’s what’s doing all the planning and all the coordination of the ongoing software. It’s really two different parts, but of course, highly interconnected.
Dziubinski: You’re kind of like the GPU of our show, and I’m the CPU of our show.
Sekera: Well, I certainly wouldn’t go that far.
Dziubinski: There we go! That’s it. OK. Last question on Nvidia, and I’ll let you be on that. How’s the stock look today from a valuation perspective? Attractive?
Sekera: It looks very attractive. 25% discount to our long-term intrinsic valuation, enough to put it in that 4-star territory. Again, it’s one of the companies that’s at the forefront of AI technology. Personally, I’d be much more comfortable investing in those companies at the forefront of AI technology, who are staying at the forefront, investing more than enough to keep themselves ahead of everybody else, as opposed to a lot of these hardware companies. Again, shortages in hardware make these companies look like phenomenal growers here for now. Just very concerned that once supply is able to keep up or even catch up to that demand, you’ll see big drops in a lot of those types of stocks.
CRM’s AI Traction
Dziubinski: Morningstar held its fair value estimate on Salesforce at $280 per share after earnings. How’d things look?
Sekera: Looks just fine to us. I think this is just another one of those indicators that tells us that the death of the software industry is greatly exaggerated at this point. They’re still using artificial intelligence to improve the economic value of their own products. We’re seeing AI showing very good momentum and revenue for those products, like Agentforce and Delta 360°, that they’re building AI into. Those two products; the annual recurring revenue is up over 200% this past quarter. Again, I think they’re using AI to make their products even better, which is going to keep them from getting displaced by AI over time. As far as taking a look at what our forecasts are, our five-year compound annual growth rate for revenue, pretty strong at 8.7%. Little margin expansion gets you to an earnings-growth rate of 13%, trades under 13 times fiscal 2027 earnings estimates.
In fact, going out to 2028, trades at about 12 times. These are really growth stocks or growth-type stocks trading at what I would consider to be pretty much value multiples.
MRVL: Any Gas Left in the Tank?
Dziubinski: Now, we have another former pick of yours. Marvell Technology reported last week, and Morningstar increased its fair value estimate on the stock to $235. What drove that pretty big fair value boost?
Sekera: Really, it’s just a combination of the strong results and the increased guidance. Management is now looking for revenue of $16.5 billion in fiscal year 2028, which is calendar 2027. And that’s up just up from where they guide … I’m sorry. You know what? My coffee maker wasn’t working this morning. And so, when I got up, I had to make a cup of coffee. I’m a little caffeine-deprived this morning, so I apologize for where I’m tripping over myself here. But yeah, I mean, the revenue guidance is up 10% from where they guided to just three months ago. Again, I think management is still trying to keep up with what they’re seeing going on in the market, and they’re going to have the closest view as far as what those growth assumptions should be. I think it’s amazing just seeing how much this AI buildout boom here in the short term is still just running at crazy growth numbers.
Overall, it was enough to lift our revenue growth assumptions for the next three years. When I just take a look at the individual products and look at some of the business lines here, Marvell expects their custom compute revenue to double again in 2029 after doubling in 2028, both of that being above our prior model. Again, once we updated that model, that was really what drove the fair value increase.
Dziubinski: Marvell’s stock has been a really good pick. It’s up more than 200% during the past 12 months. Dave, do you still like it? Do you think it still has more room to run based on its current valuation?
Sekera: It’s a tough call. As you noted, I mean, we’ve long been constructive on this name. It’s been a pick. Our analyst really stuck with his guns on this one, even when the market hated it a year, a year and a half ago. It is still a 4-star-rated stock that trades at a 13% discount. Technically, as a 4-star-rated stock, we do think that it is attractive compared to its long-term intrinsic valuation on a risk-adjusted basis. Personally, at this point, I kind of prefer to have a little bit larger margin of safety. At this point, it’s not a sell, but it also may not necessarily be the right time to be buying more of the stock at this point. I think this is probably a good one that, if you’re not involved, put it on your watchlist. If you are involved, let this one run further to the upside.
It’s got more upside potential, but if you saw a big pullback, that’s probably the point in time I’d be looking to buy this one.
MOS: Still a Pick After Earnings?
Dziubinski: Mosaic, which is another former pick of yours, disappointed, and Morningstar cut its fair value estimate on the stock to $35 from $40. What happened with Mosaic, and do you still like the stock after that fair value cut?
Sekera: Yeah, so this is a little bit of bad news, good news. The bad news is the results really just weren’t great. The company was suffering from higher production costs. A lot of the inputs that they use in their production chain were affected by supply shock, ongoing from the conflict in the Middle East, and the closure of the Strait of Hormuz. The good news here is that I think it looks like the market was expecting even worse. Even though we cut our fair value to $35 a share, the stock looks like maybe it’s bottomed out. Hopefully it’s now starting to trend upward. I think that maybe the market is starting to understand that things aren’t as bad as what that stock price seems to have indicated. Our analyst team noted that they are seeing phosphate prices in the past couple of weeks moving higher.
I think a lot of their competitors are under the same cost pressures that they’ve been under. I think that should be a good sign that the profit environment should be improving in the quarters ahead. At this point, even after the fair value cut trades at a 30% discount to fair value, still a 4-star-rated stock. In my mind, whether it’s Mosaic or some of these other companies in that part of the marketplace, I still like owning some of these actual things at this point in that value category in the value part of that barbell portfolio.
Earnings Recap: WMT
Dziubinski: Walmart stock is down since reporting, and the stock still looks really overvalued, though, despite the pullback. Morningstar assigns Walmart stock a $70 fair value. What sort of drove the pullback, because the results seemed pretty good on the surface?
Sekera: Fundamentally, very good results. I mean, strong numbers that came out of the company, top line up 7.3%, earnings up 8.0%, a little over 8.0%. Like you said, it’s just a matter that this stock in our mind is just way too overvalued. I mean, we’re still seeing ongoing increases in foot traffic, consumers still switching to Walmart from traditional grocery stores. We actually bumped up our fair value a little bit following the earnings. It’s just that this stock is trading at over 40 times forward earnings. I mean, it’s a higher multiple than what we’re seeing in a lot of AI stocks. I just don’t see how the company grows into that kind of valuation over the foreseeable future. The net-net takeaway here, it trades at a 65% premium even to that fair value that we bumped up, puts it well into 1-star territory. From a technical standpoint, when a company posts very good results like that and the stock trades down on that, that to me tells me that the market is starting to come around to our point of view.
TSCO’s Fall
Dziubinski: Well, it is time for our question of the week. Now, if you have a question for Dave, send it to us via our email address, which is themorningfilter@morningstar.com.
Today’s question comes from Zeke, and it’s about Tractor Supply TSCO. Now, Zeke is evidently a man of few words because his email said, “Holy moly, incredibly fast drop for a longtime high-quality stock.” Zeke has a point: Tractor Supply stock is down about 30% since mid-April. Before we get to his question, first tell me, Dave, why have we never talked about Tractor Supply before? It is a wide-moat stock.
Sekera: I mean, I’ll admit this one just never really hit my radar, never came up in most of the screening that I do when I’m looking for stock picks and pans. I mean, I’ll admit this is just not a name that I’ve ever really known or spent any time looking at. It’s a mid-cap specialty retailer, probably not a company that a lot of people even know who they are. When I look at our price/fair value chart, this is actually one of those stocks that had been perpetually overvalued for a number of years, so it never came up as a pick, but then again, it was never so overvalued that it really hit my screens as being overvalued enough to be a sell. Overall, what does this company do? They’re actually the largest operator of retail farm and ranch stores in the US, with most of their stores located in pretty rural types of communities.
The focus here is a little bit different, as their focus is on what they call recreational farmers and ranchers. They actually don’t have that much exposure to what they call commercial or industrial farming operations. It’s a much larger store base than I would’ve thought. Over 2,400 stores in 49 states. They also have 200 Petsense stores. This has really been a strong growth story. Back in 2005, they only had 600 stores. In 2010, it had grown to a thousand stores. Five years ago, in 2020, they had 1,900 stores. So, that was a 7% compound annual growth rate of new store openings over the past 20 years. To be honest, I didn’t even really realize just how fast this chain had been growing.
Dziubinski: What happened, Dave? Why has the stock fallen so much?
Sekera: Overall, it had pretty weak first-quarter results compared to what the company had been putting up over the past couple of years. Really, that was driven by … Well, the good part of the news was that what they did post was driven by those new store openings. But when you look at the ongoing business, the same store sales for those stores that have been open for at least the past year were only up a half a percent. What we saw here is that the average ticket of checkout prices was up 1.6%, but the number of transactions declined by 1%. It looks to me like they’re growing a little bit less than what the inflation rate is right now, and you have a decline in the foot traffic, which, those two things combined for a retailer, especially a specialty retailer, is certainly something that’s going to cause a red flag in the marketplace.
Interestingly, the biggest decline that they saw here was in their pet food category, which had been one of their strongest growers over the past number of years. Overall, earnings declined here by 7% because pet food is actually one of their larger margin products. Now, management did reiterate their full year guidance. They talked about revenue for the full year being up 4% to 6%. That tells me they’re actually looking for a pickup in their performance over the next three quarters. It remains to be seen if they can make that. I think if they are able to succeed and get that type of performance, I think that’s going to comfort the market a lot. Taking a look at where the stock is trading, they gave a guidance range of $213 to $223 per share. Means at the midpoint, they’re trading at only a 14 times forward PE.
Seems like a pretty good valuation for a company that we’re still expecting to grow pretty significantly over the next five years. I think the selloff here really just reflects the market losing confidence in the company in the short term, but we still have to wait and see, maybe over the next three quarters, where things turn out.
Dziubinski: What’s Morningstar’s outlook on Tractor Supply today, and is the stock a buy after that pretty big fall?
Sekera: The stock looks pretty attractive here, trading at a 36% discount to our long-term intrinsic valuation, puts it into 5-star territory. As you mentioned, we do rate this company with a wide economic moat, meaning we think they do have long-term, durable competitive advantages. Our long-term outlook, going through our model, we’re still looking for new store expansion, that to continue over the next five to 10 years. We’re looking for the number of stores to grow to 3,500 stores by 2035. As far as our compound annual growth rate for revenue over that five-year period, we’re looking for a total of 6%. It’s essentially 4% coming from net new store openings and then same-store sales averaging 2% to 3% to get to that overall number. I think part of the attraction here would be that they would be selling more advertising space going forward. Advertising, as you know, of course, is going to be a very high-margin business.
With more advertising dropping to the bottom line, that gets their earnings per share to grow at a 10.5% over the next five years. I do have to mention, in the spirit of investing in the Peter Lynch philosophy, investing in what you know, and admitting that I didn’t know this company, I did a little due diligence this weekend. Here we are: Dave, at the Tractor Supply Company this past weekend.
Dziubinski: Wow. There you go. What did you buy?
Sekera: I guess I was pretty impressed. When we got there Saturday morning, myself and my father-in-law, we actually needed a couple of things, so we went there. The parking lot was at least half full. Definitely saw a lot of foot traffic coming in and out of the stores, pretty good product selection across the store, very helpful people who were working there. Even though we do like maybe a Lowe’s, one of the competitors, that stock also looks pretty attractive. But I do have to say this is a good one. You know what? Before you start buying into some of these companies, I think it’s always good to go out there, kick the tires, get online, see if there’s a Tractor Supply Company anywhere within half hour, 40 minute, however long you’re willing to drive and head out there on a Saturday morning or a Sunday afternoon and just walk around the store, see what it feels like, see what it looks like, see what people are coming in and buying and do your own due diligence before you buy into this one.
Dziubinski: Well, Zeke, thank you for raising the profile of Tractor Supply in Dave’s personal life. This is great. And who knows? We might talk about it again on the show sometime.
Stock to Sell: BE
Well, it is time for the stock picks portion of our program. Now, viewers and listeners, you’ve told us that you like it when we occasionally focus on stocks to sell, and that’s what we’re doing today. Dave has brought us five overvalued stocks to sell, and the first up is Bloom Energy BE. Dave, tell us about it.
Sekera: Even before I talk about stocks to sell, I just have to also caution that these aren’t short ideas. Short ideas are different than stocks to sell. Short ideas are ones where we’re looking for some sort of specific hard catalyst for overvalued names that we think will cause a stock to sell off after that hard catalyst occurs. In this case, stocks to sell are usually just stocks that we think are significantly overvalued that we think have a lot of downside risk to them, but they aren’t necessarily stocks that we’re saying are going to fall anytime soon. In fact, like anything else in the marketplace, just because the stock is overvalued doesn’t mean it’s going to come down. A lot of overvalued stocks, and you’ll see this in the valuation on these stocks, can go well above what we think long-term intrinsic valuation is.
Now, in this case, Bloom Energy is a 1-star-rated stock that trades at over a 300% premium to our fair value. Our fair value on this stock is $70. It’s a company we rate with having no economic moat, and this is one of those few cases where we see an extreme uncertainty. Huge range of potential outcomes that could occur with this company over the next five to 10 years. When I did a stock screen of our US coverage, this is the most overvalued stock according to our valuations. This stock is up over 1300% in just the past 52 weeks. I think this is probably, at this point, with an $80 billion market cap—in fact, it’s the 138th largest stock by market cap under coverage—probably the largest-cap stock that you actually have never heard of. What does the company do? They manufacture solid oxide fuel systems for on-site power generation.
The stock has been caught up in the AI buildout boom. I mean, it provides electricity, which is very attractive for data centers. It provides a lot of reliability, provides resiliency for these data centers. I fully understand why a lot of data centers have an interest in Bloom Energy products to power their facilities. In fact, the other big attraction here that I think the market has really picked up on is that they can deploy their systems faster than what it takes for utilities to be able to upgrade the amount of electricity that they provide. In fact, the electricity that Bloom’s products provide is very attractive for data centers in that it’s a very stable voltage, has what they call low harmonic distortion, cleaner waveform, tightly regulated frequency. For running the types of electronics or the type of semiconductors that are in these data centers, it’s a very attractive type of electricity that it produces, and it has huge amounts of growth.
We think it’s just at this point that the stock market is pricing in way too much growth over our fair value estimates.
Dziubinski: As you pointed out, Morningstar assigns a fair value to Bloom stock of $70, and of course, it’s trading way above that. What would an investor have to actually believe to justify Bloom’s current stock price?
Sekera: Here’s what I did with this one, and a lot of these, is I pulled up our model, and I looked at what we’re currently forecasting in, and then I went to what we call the front end of the model, which are all the analyst forecasts and started playing around with that to see just how much we had to boost those forecasts to get there. So just as far as, I mean, how much we’re expecting this company to grow in our own forecasts, the company only did $2 billion in revenue last year. We’re looking for that to double this year to $4 billion. We’re looking to further increase to $6 billion in 2027 and by 2030 to get up to $10 billion. That’s a 37% five-year compound annual growth rate. If I take a look at earnings, they only did $0.82 per share last year.
We’re expecting them to do $2.24 this year in 2026. Based on where the stock is trading, that’s 120 times forward multiple. We’re looking for that to not quite double in 2027 to get to over $4. And by 2030, to get to $7.90, which is still a 35 times multiple on 2030 earnings estimates. Even with the margin expansion and looking at a 57% five-year compound annual growth rate for earnings, you still are getting to a very highly valued stock by 2030. To get to current market valuation, what I had to do was double sales in 2027 from 60% growth. I had to take our growth in 2028 up to 75% from 30%, take our growth rate in 2029 up to 50% from 20%, and by 2030, still have them growing at 25%, which was above our 10% growth number. In perspective, by 2030, you’d have to get to a revenue run rate of $22.6 billion versus the $10 billion that we’re currently modeling in.
Plus, you still have to expect the company to keep growing at 20% thereafter, as compared to our 12% long-term growth rate. So net-net, you essentially have to double our growth rates over the next 15 to 20 years to get to what the stock is pricing in today, and that’s just to get it to fairly valued.
Stock to Sell: CIEN
Dziubinski: Wow. OK. Well, your next stock to sell is Ciena CIEN. So give us some of the key metrics on this one.
Sekera: Ciena is definitely a leader in high-speed optical connectivity, with just off-the-chart demand for its products with the AI buildout boom. Unfortunately, it’s trading at 115% premium to our $270 fair value, more than enough to put it in 1-star territory. In fact, this is now the second most overvalued stock in our US coverage. We do rate the company with a narrow economic moat, but we also do have a very high uncertainty on this one.
Dziubinski: Ciena will report earnings this week, with its stocks up more than 600% during the past 12 months. Again, why is this a stock to sell? It boils down to valuation, right?
Sekera: I think it’s really just more, what do you expect for this, and how long do you expect this company to keep growing like they have? Just to put things in perspective, over the past three years, revenue has averaged about $4 billion. We’re projecting $6.2 billion in 2026, $7.4 billion in 2027, growing to almost $11 billion by 2030. Again, that’s an 18% five-year compound annual growth rate. Over the past decade, going back to 2015, that average revenue growth rate has only been 7.3% compared to the 18% that we’re currently modeling in. Earnings last year, $2.64 per share. We’re looking for it to grow all the way to $6.17 this year in 2026. The company is currently trading at 88 times forward PE, looking for ongoing growth, getting to $8.42 in 2027, getting all the way up to $14.64 by 2030. That means by 2030, you’re still looking at a valuation of 37 times earnings.
Granted, we are projecting a five-year compound annual growth rate for net income of 68%. Again, you’ve got to have all of the stars line up to get to that 37 times earnings that we’re currently modeling into our fair value. How do you get to where the market price is today? You have to double our five-year compound annual growth rate for revenue to 35% from 18%. That means revenue would have to grow to $21 billion in 2030 versus our current forecast of $11 billion. Now, to put that in perspective, that means in 2030, revenue would need to be at a run rate that’s 3.5 times our 2026 forecast, and not only that, but permanently stay at that new run rate and continue to keep growing thereafter.
Stock to Sell: SNDK
Dziubinski: Sandisk SNDK is your next sell, so tell us about it.
Sekera: Sandisk, of course, is one of the five largest suppliers of NAND flash memory. We know there’s a huge shortage of memory chips available. Insatiable demand from the AI buildout boom for memory right now. Again, one of these companies, they can charge whatever they want for the product. People are going to pay it, so you see a huge increase in revenue. You’re also seeing a huge increase in operating margins at this point in time. Again, in my mind, I still think it’s more of a commodity-oriented product. At some point, supply is going to catch up, and when that happens, look out below. It’s a 2-star-rated stock at a 70% premium. We rate the company with no economic moat because we think it is a commodity-oriented product, very high uncertainty. It’s just phenomenal what this stock has done over the past 52 weeks. It’s gone from $40 a share to $1,600 a share.
Dziubinski: Morningstar thinks Sandisk stock is worth $1,000 per share. What are the assumptions underpinning that? What would you have to believe to justify the stock’s current price?
Sekera: All right. Running through the numbers here again to get to our $1,000 fair value. This is another one. The average revenue over the past three years was $6.7 billion. We’re modeling that to triple here in 2026 to $19.7 billion. We’re looking for $46 billion in 2027. That’s over six times higher than what they did for revenue in 2025. Now, we are expecting that revenue here peaks in 2028 at slightly over $46 billion, and as we expect more memory chips to be manufactured and come online, maybe some technological change in AI that they don’t demand quite as much memory. We start looking for revenue to start coming down thereafter, but we’re still modeling in almost $25 billion in 2030. For earnings, we’re looking for … I’m sorry, they posted $2.99 in 2025. Now, comparatively, they actually had negative earnings in 2023 and 2024. Want to guess what earnings in 2026 are going to be?
Dziubinski: No idea. Dave, what?
Sekera: $72.22.
Dziubinski: Wow.
Sekera: Wow. That’s compared to essentially $3 last year. In 2027, we’re modeling in $203 in earnings and then starting to come down in 2028 as the markets peak, and margins start to compress. We’re still looking for $194 in 2028. By 2030, we’re expecting that to come down to $65.88, which means that it’s trading at a 25 times our 2030 multiple. To get to the market price, I think what you really have to assume, and it’s not just this company, it’s all of these commodity-oriented tech hardware. You have to assume that AI has driven a permanent shift in demand for their products, with essentially no corresponding increase in supply or reduction in pricing and margins, really no change in AI technology that would require less memory. Again, even though we expect things to tail off in 2029 and 2030, by then 2031, that sets that new baseline to continue to keep growing thereafter as opposed to continuing to come down thereafter.
Dziubinski: Well, I’m sensing a theme here, Dave.
Sekera: Yep. Yep.
Stock to Sell: MU
Dziubinski: Because your next sell is Micron Technology MU. Give us the bird’s eye view.
Sekera: Micron, another one of these chip providers, they specialize in memory and storage chips, both DRAM and NAND. It’s a 1-star-rated stock, almost double our fair value, no economic moat, and a high uncertainty.
Dziubinski: Morningstar thinks Micron stock is worth $455. How does Morningstar’s opinion differ from that in the markets? What do you have to really expect to justify the current stock price?
Sekera: I know this is a lot of numbers that I’m throwing out there, but I think it really helps investors try to conceptualize what’s going on right now, what we’re already forecasting for the next couple of years, and what you have to believe thereafter. In this case, the company’s already been posting really strong growth over the past three years, $15.5 billion in revenue in 2023, $37.4 billion by 2025, and still that’s just nothing compared to what we’re forecasting. We’re looking for $115 billion in revenue here in 2026. That is triple last year’s revenue. We’re looking for it to peak at almost $200 billion in 2027. I mean, that’s not quite double what we’re looking for this year. And then, similar to what we’re expecting for the rest of that memory space, we are then looking for revenue to peak and then start declining in 2028.
We’re looking for $185 billion in 2028, then declining to $95 billion in 2030, but then looking for that to be kind of that new permanent level going forward, and then looking for and forecasting ongoing growth thereafter. We’re looking for the operating margin to hit 80% at its 2027 peak, begin to slide thereafter as new supply comes on market, but even still, we’re looking for the operating margin in 2030 to be 39%, which is higher than the 26% that they had last year. As far as earnings, $8.29 last year, we’re forecasting that to be $62.63 in 2026. Now note, that’s only a 15 times earnings multiple. We’re looking for earnings to get to $118 in 2027 and then to decline to $29 by 2030. It’s trading at a 33 times 2030 earnings estimate. I think this is one of these great examples for companies that are in a commodity-type industry.
You have to remember that P/E ratios are actually at their lowest when the company is at its peak. To get to today’s market price, essentially, you have to assume that revenue never declines. It continues to rise in 2028 through 2030, as compared to us expecting that revenue to decline as new supply comes online and as they can’t charge the crazy prices that they’re able to charge today. You still have to assume that revenue grows essentially 5% in perpetuity thereafter.
Stock to Sell: EBAY
Dziubinski: Your final stock to sell this week is one that’s been in the news recently. It’s eBay EBAY. Run through the numbers.
Sekera: 1-star-rated stock, over 60% premium, certainly still one of the most overvalued stocks in our stock coverage. Stock has risen 50% just over the past year alone. We rate the company with a high uncertainty, but we do at least rate it with a narrow economic moat based on its network effect.
Dziubinski: Now, eBay recently rejected a takeover bid from GameStop, and Morningstar thinks shares are worth just $67. What’s Morningstar think the market’s kind of getting wrong on this one? Where do our assumptions differ from the markets?
Sekera: Again, this is actually nothing about eBay in and of itself. We actually have a pretty positive view, I think, on the company. In fact, this was a stock pick on the Nov. 27, 2023, episode of The Morning Filter. Like you said, it’s just now at this point we think the stock has run way too far from when it was a stock pick back then. As far as our forecasts go, we’re looking for top-line growth of over 6%. I mean, that’s faster than the past three-year average of only 4%. We’re looking for almost 200 basis points of operating margin expansion through 2030. That’s higher than what the 10-year average has been. We’re looking for earnings growth of over 11%. I think fundamentally, we’re still looking at this as being an attractive story from a fundamental point of view. As you mentioned, I think it’s just a matter of valuation.
The market is obviously pricing in much faster growth than us. What exactly are they pricing in that’s different? My guess is I think they’re probably pricing in a lot faster advertising revenue growth than what we’re currently looking for in our estimates. Ad revenue, of course, is one of those things where it drops pretty much right to the bottom line, not a huge amount of additional costs that it costs to do more advertising. That’s my guess here. Again, this is one where I think we have pretty constructive forecasts here. I think it’s just a matter of one of these stocks that just got caught up with too much momentum, and now’s a good time, especially if you followed our advice back in 2023 and bought some stock to, at least peel some off here, lock in some of those profits. If nothing else, if the stock falls from here, you can always buy it back cheaper.
Worst-case scenario, if it continues to keep running higher, don’t sell your entire position, and hopefully you can still continue to benefit that way.
Dziubinski: All right. Well, thanks for your time, Dave. Viewers and listeners who’d like more information about any of the stocks Dave talked about today can visit Morningstar.com for more details. We hope you’ll join us next Monday for The Morning Filter podcast at 9 a.m. Eastern, 8 a.m. Central. In the meantime, please like this episode and subscribe. Have a great week.