Plus, investment takeaways from the first half of the year.
On this week’s episode of The Morning Filter, Dave Sekera and Susan Dziubinski share which economic report is a must-watch-for during this shortened trading week. They also discuss whether FedEx FDX or Carnival CCL are stocks to buy after earnings, review news from Novo Nordisk NVO and Amgen AMGN about their obesity drugs, and take a deep dive into Morningstar’s outlook for Blackrock BLK.
Plus, they talk about what 2025 has taught investors so far, and Dave shares a half dozen eclectic stock picks to consider heading into the third quarter.
Episode highlights:
The One Economic Report to Watch This Week
Are These Stocks in the News Buys?
Investments Lessons from 2025 So Far
Stocks to Buy Now & Hold for the Long Term
Read about topics from this episode.
Register now to watch Dave’s comprehensive 3Q 2025 Outlook webinar on Thursday, July 10, at 11 am CT, 12 pm ET.
Find out what Dave’s top dividend stock picks are for the rest of 2025: 10 Top Dividend Stocks for 2025
Learn more about Morningstar’s approach to stock investing: Morningstar’s Guide to Investing in Stocks
Got a question for Dave? Send it to themorningfilter@morningstar.com.
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Viewers who’d like more information about any of the stocks Dave talked about today can visit Morningstar.com for more details. Read more from Susan Dziubinski and Dave Sekera.
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Susan Dziubinski: Hello, and welcome to The Morning Filter. I’m Susan Dziubinski with Morningstar.
Every Monday before market open, Morningstar Chief US Market strategist Dave Sekera and I sit down and talk about what investors should have on their radars for the week, some new Morningstar research, and a few stock ideas.
Well, we have a shortened trading week ahead here in the US, thanks to the 4th of July holiday.
Any big plans for your time off, Dave?
Dave Sekera: Hey, good morning, Susan.
That is quite the scarf you’ve got going on this morning. Not going to lie, I’m a little jealous.
Now, as far as the Fourth of July goes, some sand, some sun, some barbecue, maybe a couple of beverages here and there. But most of all, just the gratitude that I do live in the greatest country in the world.
So how about you?
Dziubinski: About the same for me. Some family, some friends. And we have a tradition in this house the past couple of years. Instead of barbecuing, we go to Ruth’s Chris for a steak. So that will be on the agenda, my husband and I, and any of our kids that don’t have plans, which will probably be none of them. So it’ll probably be my husband and I.
But anyway, that’s our tradition. So we’re looking forward to it.
Sekera: Well, of course, now I have to remember who owns Ruth’s Chris and go take a look at that stock.
Dziubinski: Darden owns Ruth’s Chris.
So last week, when we talked about Darden, I almost interjected with it, but I’m like, no, I’m going to save it for next week.
Sekera: All right. Well, give me a report when you get back.
Dziubinski: I will. Last week was a good week in the market with the S&P 500 hitting a new high. Yet we still have tariff and geopolitical uncertainty. That core PCE number came in a little hotter than expected. So, Dave, what do you make of the market today?
Sekera: And futures looking like they’re in the green this morning. So it’s still more positive momentum going into both month-end and quarter-end.
So at this point, according to our valuations, the market is now trading maybe just a hair above a combo of our fair values at this point.
A couple of different things going on.
So, from a positive point of view, when I look at the macro dynamics, of course, geopolitical uncertainty is much lower. Now we’ve got the truce between Israel and Iran. Oil prices have fallen back to preconflict levels. And while the personal consumption expenditure was higher than expected, inflation still really isn’t a near-term concern at this point.
Now, having said all that, on the negative side, I still need to see what happens with the trade and tariff negotiations. How that may or may not impact a lot of the companies under our coverage, as well as the economy overall.
And here in the near term, July 9 is now coming up fast, so that’s the first trade pause deadline. So again, we need to see what trade negotiations may or may not occur. Whether or not it’s pushed back further again while they’re negotiating. But either way, that’s going to come up fast, and I think that’s going to be, the market’s going to be focused on.
Then, of course, mid-August, Aug. 12, that’s the deadline with China. Again, I think that’s going to be a really big event. As far as just the news and the headlines, as far as how those negotiations are going. At this point, it looks to me like the market is just pricing in that both of these negotiations out there are really just a nonevent at this point in time. Not necessarily sure that that’s going to be true or not.
Now, I also still expect that the rate of economic growth is slowing. Our US Economics Team is looking for the kind of real fundamental rate of economic growth to slow sequentially each quarter over the course of this year until we bottom out in the fourth quarter. So I think that, to some degree, is going to weigh on earnings growth here in the near term.
Of course, the Fed is still on pause for now. The market’s pricing in a rate cut in September. We’ll see whether or not that occurs.
So, in my mind, I think at the levels that we’re at right now, it feels a little frothy going into both month-end and quarter-end.
Maybe some of the institutional investors are just trying to keep prices high in order to keep their returns looking good, so I think for investors, the real question for you now is, Is now the time to be putting new money into the market? Or is now a good time to be taking a little profit off the table?
Personally, I did a little bit of selling last Friday, not a huge amount, but again just enough to lock in some of the profits on the table right now.
And that way, if we do have some kind of dip or pullback, I’ve got the cash then be able to put that to work. But overall, still, that market-weight recommendation.
Dziubinski: All right. Well, despite the short week this week, we do have nonfarm payroll numbers coming out. So remind viewers why this is an economic report that you’re typically watching.
Sekera: Really, more than anything else, I’m watching it just because the Fed is watching it. The Fed’s mandate, of course, is that dual goal of keeping inflation steady at their 2% long-term target, as well as having the conditions that maximize sustainable employment. So this is one of the metrics that they use as a gauge for employment, just for the strength of the labor market.
And while it is important to watch, I also still will caution investors, just remember, any one monthly report is not necessarily that significant in and all of itself. Really, I’m looking more at the trends, looking at the underlying data. And like all economic metrics, this one is subject to revision over time.
Dziubinski: All right, well, let’s talk about some new research from Morningstar on stocks in the news.
We had FedEx reporting earnings last week, and this was one you were keeping an eye out for. So what did Morningstar make of the results?
Sekera: I would say they were pretty lackluster overall. Top line growth was less than 1%. Growth in domestic business-to-consumer shipping did increase. However, that was offset by weakness in the industrial sector, especially in that less-than-truckload area. Overall, I think it just supports the economic outlook of our US Economics team for that slowing rate of economic growth.
Now, the company did give fiscal 1Q guidance for flat to 2% top line growth. So, again, still pretty lackluster. And their earnings for the first quarter is $3.40 a share to $4 a share. So that’s lower than what the consensus was of $4.05 per share. But to me, the even more concerning aspect is that management decided to not give guidance for the full fiscal-year 2026 due to the heightened uncertainty that they’re seeing out there.
So, from an investing point of view, no change to our fair value. We’ve already taken into consideration kind of this slowing economic outlook. So at this point, it’s still a 3-star-rated stock, trading within the value range that we consider to be fair value.
Dziubinski: Now, the stock of Carnival popped after earnings, and Morningstar expects to raise its fair value estimate on that stock. So, tell us about the earnings report.
Sekera: So in this case, the company is still continuing to see pretty strong fundamentals, just strong demand overall.
2026 bookings were in line with record bookings that they had in 2025. Customer deposits still growing. So, again, that’s that intention. If people are putting money down, they’re definitely going to be traveling. And so our team noted that we’re going to increase our assumptions for a combination of both higher pricing as well as net yield growth forecasts.They also mentioned that the company’s refinanced enough debt here to be upgraded by Standard & Poor’s and Fitch.
So at this point, they’re still a high-yield company, but they’re only one notch below investment-grade. So that’s also going to help them lower their interest expense going forward. So a lot of good tailwinds still behind this stock in particular, and the cruising industry overall.
Dziubinski: So then, given that runup in Carnival stock and the anticipated fair value estimate boost, is there an opportunity to buy here?
Sekera: It’s interesting. I went back and looked. This was one of the first stocks we first recommended when we started The Morning Filter in early 2023.
And it’s one that we did reiterate that buy call a number of times until we swapped out for Norwegian Cruise Lines when that one, on a relative value basis, was more attractive. And as you mentioned earlier, the analyst does expect that they’re going to increase our fair value here as they update and republish the model. They think that’s going to bring the fair value up by kind of that high-single-digit percentage. So depending on how much they increase it, that would take the discount to fair value somewhere in that kind of mid to upper teens.
Personally, at this point, for a company with a High Uncertainty Rating, I prefer to have a little bit wider margin of safety at this point.
Dziubinski: Well, we had some news last week from two drugmakers that led to a pullback in their shares.
First, Novo Nordisk announced it was ending its collaboration with telehealth provider Hims. And the company also announced some new data on one of its key obesity drugs in trial. So unpack the news for us, Dave, what it means, and if there was any impact on our fair value estimate on Novo stock.
Sekera: Yeah, so essentially, what Novo is trying to do here is they want to maximize the number of patients taking their branded GLP-1 drug, Wegovy, versus people that are taking the compounded version instead. So we ended up making a slight reduction to our fair value just to account for that greater than expected competition from the compounded version.
And then as far as the data from their phase 3 obesity trial, that’s for drug called, and I’m probably wrong on how to pronounce it, but CagriSema, that showed similar tolerability and muscle loss as the other GLP-1 therapies. So that supports our thought that we think this one will get approved in 2027.
Dziubinski: Now, we also saw Amgen Stock pulled back last week after reporting trial results around one of its new obesity drugs. So what was the news, and what did Morningstar think of it?
Sekera: So the market, overall, we think it was kind of disappointed by the tolerability data in its phase 1 and its phase 2 studies for its obesity drug candidates. And management did disclose the design for two ongoing phase 3 obesity drug studies. They’re still just trying to figure out how to be able to dose these drugs to improve that tolerability. In our view, in our model, we still continue to model in a 2028 launch. I think we’re looking for 9 billion of revenue by 2034 is kind of our base-case scenario. So, which is probably relatively conservative. That’s only a 5% market share of the overall market at that point.
Dziubinski: So then how do both Novo and Amgen look from a valuation perspective? Is there an opportunity in either of those two stocks today?
Sekera: Maybe. So Novo is a 4-star-rated stock. It’s at a 20% discount, but that puts it right on the border of being like a 3- to 4-star-rated stock.
Now, with all of these companies, a lot of moving parts within the weight loss drug sector. Several different players, a lot of different drugs already out there, a lot of different drugs that are coming online over the next couple of years. So this is an area that if you want to get involved, you really need to read through the research, need to understand the dynamics of this sector.
And then, as far as Amgen, similar story, it’s a 4-star-rated stock at a 17% discount. Again, also kind of right on that border between, like, 3 and 4 stars. So I don’t know, maybe not necessarily the best time to get involved in these stocks. Maybe looking for a bit wider margin of safety unless you’re already in it and already know the story.
Dziubinski: All right. Well, it’s time for our question of the week.
As a reminder, viewers and listeners can send us your questions at themorningfilter@morningstar.com. All right, Dave, a viewer who watches The Morning Filter on YouTube, would like you to provide some analysis on BlackRock.
Sekera: Yeah. So I read through it over the course of the weekend, and here’s my initial takeaway.
So, it is a 3-star-rated stock trading almost right on top of our fair value estimate.
Stock currently yields 2%. It is a company we assign a High Uncertainty Rating, but we do have a wide economic moat. That wide economic moat being based on intangibles and switching costs. And one of the few stocks out there with a Capital Allocation Rating of Exemplary.
Now, the company did have a recent investor day. So, their revenue target is to reach $35 billion in 2030. That’s up from $20.4 billion in revenue last year. So, essentially just over a little bit of a 9% compound annual growth rate.
And then they’re looking for their adjusted operating income to grow to 15 billion in 2030, from 8.1 billion currently. I think a lot of that growth is estimated to come from growth in the private asset market, as opposed to just necessarily its public assets under management.
Overall, when I look at our model, this is pretty close to being in line with our own estimates. Now, our analyst did note that, of the nine publicly traded, US-based asset managers we covered, this is his top pick. But I would say that where the stock is currently trading versus our fair value, while there’s no need to sell the stock today, it is trading at 23 times forward P/E. It’s just fully valued as compared to our long-term intrinsic valuation and our model.
So, in order to get to 4 stars, it’d need to be at a 15% discount from fair value, which, based on where it’s trading today, that would be a little bit under a 20 times P/E, so it would look more attractive. Overall, I think this is probably a stock you want to keep on your watchlist to buy.
So again, I don’t think you need to sell it if you’re already in it today, but this is one where you want to watch. Because when the markets do have weakness, when we do see selloffs in the market, this one usually kind of exaggerates the downside. Of course, their business is based on the amount of assets under management. So as the stock market is falling, this one falls further and faster. And then, when the markets bottom out and come back, it also rebounds further and faster. So one, you might be able to play a little bit of the market volatility.
Dziubinski: All right. Well, we are at the midpoint of 2025. Hard to believe it. So viewers and listeners, mark your calendars. Dave and Morningstar’s economist, Preston Caldwell, will be presenting their comprehensive hourlong Mid-Year 2025 Stock Market Outlook webinar on Thursday, July 10 at 11 a.m. Central Time. Now, you can register for the webinar, and the webinar is free, via the link in the show notes.
Now, Dave, it’s been an eventful year for investors so far, to put it mildly. So as we close out the second quarter, what are a few of the key investment lessons you think the market has provided us with this year?
Sekera: I mean, a lot of people use the word “uncertainty” a lot today. And yes, it does seem like we’ve had more than our fair share of uncertainty thus far this year. But I think it’s just one of those things. The market is always going to have to deal with uncertainty depending on whatever it is. So beginning of the year, we noted that the market was trading at a pretty rare premium to our fair values. Now, over the course of the past six months, our fair values have come up to the same point that the market has now bounced back to. So, it is pretty close to fairly valued. But when I think about what we’ve seen over the course of the year, we had DeepSeek, that led to a pretty big bear market in a lot of those AI stocks. Some of them by the time they bottomed out were down 30, 40% or more.
Of course, it was exacerbated by the “Liberation Day” tariffs, then, most recently, the Israeli and Iranian conflict. But really, has this time period been that much more uncertain than some of the uncertainty that we’ve seen over the past decade or so? Personally, I think it’s less than 2022 when we had the market sell off then, certainly less than the emergence of the pandemic, less than back in 2011, when we had the European sovereign debt and banking crisis, less than the bubble bursting.
So, yes, an uncertain environment, but certainly not what we think really kind of the potential big downsides are when I look at some of those past events. So when I think about what investors really need to do today is first, just look at your portfolio, make sure you understand your own risk tolerances, make sure that you have that wherewithal to live through periods of uncertainty and volatility, understand your own investment goals and needs and that timeline, and make sure your portfolio is structured so that when there are 20% drawdowns in the stock market, that you’re able to live through that, that you’re not panicking and selling off just at the same time that the market might be bottoming out.
And I think you need to understand what kind of investor are you? How active do you want to be? Some investors just might set targets and just let it run. They might be a 60/40, 60% equity/40% fixed income, just buy a total stock market fund, total bond market fund, and set and forget. Others take more of a hybrid strategy between passive and active management. Probably have a base of ETFs and mutual funds to get that broad diversification. And then they can overweight or underweight the market, certain sectors, certain areas within the market, based when valuations start moving too far away from fair value.
So they can use ETFs and maybe start sprinkling in some individual stocks here and there versus other managers or other investors who are going to be much more active. But even there, just make sure that you’re investing, not necessarily trading. Trading is fine, but that should be a separate part of your portfolio. In that case, you might have a higher percentage of individual stocks. But again, you need to make sure you understand your risks. And overall, watch your portfolio when it starts getting too far out of whack. If equities move up, take some money out of equity, put it back into fixed income, vice versa when the markets are falling. Rebalance out of fixed income to put back into equities when they start looking cheap.
So overall, make sure that you are dollar-cost averaging to the downside. So, for example, on the April 7 edition of The Morning Filter was when we had moved to that overweight recommendation for markets overall. But now that the market has come roaring back as much as it has, I wouldn’t argue with taking some profits here at this point and locking in a lot of those gains. And again, having the principal or the cash ready to put to work if we do get any kind of summer swoon.
Dziubinski: All right, well, let’s move on to this week’s picks. And Dave, you’ve put together quite an eclectic bunch of stocks to buy this week.
So, your first two picks of the six are two of the 10 dividend stocks you talked about in a video that you do every summer with our colleague David Harrell, called 10 top dividend stocks for 2025.
Viewers can find that on YouTube or you can find it on Morningstar.com. Anyway, so the first dividend stock pick from that list that you’re going to talk about today is Healthpeak Properties. Give us the details.
Sekera: Five-star rated stock, trading at a 37% discount to fair value and has a 7% dividend yield. We rate the company with a medium uncertainty. And like a lot of the real estate sector and the REITs, we do not award it an economic moat, so no moat.
Dziubinski: Now, Healthpeak is a REIT that’s really undervalued, even by REIT standards today. So is this kind of a pound-the-table opportunity from your perspective?
Sekera: So when I look at the story here, overall, it’s a portfolio of medical office buildings and life sciences, research and development facilities, laboratories, and so forth. Really, some of the most defensive real estate I think that you can own in your portfolio. So I think the concern from the marketplace here has been that the rent increases that they’ve seen over the past year or two is lower than what we’ve seen as far as your rent increases in a lot of other real estate sectors. And that, to some degree, is what’s actually provided the opportunity for investors here.
Now the other concern going on is that we are seeing a pressure as far as capex spending in the healthcare sector overall, pullback in government spending here. So people are concerned that maybe re-leasing spreads for life sciences will be lower going forward. In our view, we don’t think that’s as much of a concern for this specific REIT as we do for other life sciences real estate. So, for example, where we see more of the spending pullbacks is going to be more among public entities or universities. Whereas most of the real estate here is going to be leased out to companies in the private sector instead. Now, I also took a few minutes to speak to Kevin Brown. Now, he’s the analyst that covers this company. He’s very confident in his valuation. Management recently reaffirmed their 2025 guidance. So they’re looking for adjusted funds from operations for $1.81 to $1.87 per share. It’s a little bit different metric than what you’re going to hear about like earnings per share. But again, what we’re measuring here is the cash flow that’s going to be available to shareholders. In his view, net operating growth income is going to be—the guidance is pretty conservative. And he’s also noted that based on where the stock is pricing, if he kind of backs into where he thinks the market is making kind of that implicit assumption as far as what the valuations are on the individual real estate buildings here and he looks at where that compares to actual real estate transactions he’s seen over the past year or two, a lot of what he’d call like midquality medical office buildings have traded at levels that are higher than what he thinks kind of the quality level of DOC is going to be. He thinks that the real estate that this company owns is higher quality than what we’ve seen for some of these other trades out there. So again, he’s just confident in the valuation. He’s confident the company is going to be able to maintain its dividend.
In fact, in his model, he’s looking for annual dividend increases of 4% per year. We’re only modeling in 3.25% growth in re-leasing spreads in the future. It seems relatively conservative to me, anyways. And then, lastly, the company is also out there repurchasing a pretty good amount of stock.
So, as this company continues to repurchase stocks at levels this far below our fair value estimates, that just should accrete economic value to shareholders over time.
Dziubinski: And your second pick this week is a stock we haven’t talked about in quite a long time on The Morning Filter. It’s Energy Transfer. Tell us about it.
Sekera: Yeah, we recommend a lot of these MLPs, the master limited partnerships, a number of years ago. I think pretty quickly, like after we started the show. And there were also a lot of our dividend picks, at that point in time, they were very undervalued back then. But a lot of these stocks rallied over the past couple of years up toward fair value and no longer provided that margin of safety that we were looking for. So in this case, it is a pipeline company.
We’re looking for continued volume growth over time in liquefied natural gas. And just want to make sure people understand an MLP is a little bit different than your typical stock. So an MLP is a unit in a limited partnership, which is in turn owned by the general partnership, who’s the company that actually runs the underlying business. So, in this case, MLPs do have some tax advantages for certain types of investors. So in that case, it’s traded as a limited partnership for tax purposes. So instead of getting like a 1099-div, you’d actually get like a schedule K1 instead, which is reported differently on how you file your taxes. So, before you buy this stock, you might want to just make sure you kind of understand those dynamics and how that may or may not fit into your overall portfolio.
Dziubinski: Now, we haven’t talked about Energy Transfer in a while. So, why is it specifically one of your picks, dividend picks today?
Sekera: Just a matter of valuation. The stock is down 7% year to date.
It’s enough that it’s now trading at a 13% discount to fair value, puts it in 4-star territory. Provides a nice, healthy dividend yield of 7.2%.
Dziubinski: All right. Well, again, members of our audience who are interested in dividend stocks, be sure to check out Dave’s video, 10 Top Dividend Stocks for 2025, if you want more ideas.
All right. Now, your next two picks this week are AI ideas that you talked about during your presentation on AI at last week’s Morningstar Investment Conference. So, first pick, Salesforce. Give us the bird’s eye view on this one.
Sekera: Yeah, and I don’t mean to be giving our viewers whiplash here, going from high dividend, safe stocks, all the way—well, high dividend stocks in sectors that are more value-oriented to maybe to growth-oriented sectors. But again, 4-star-rated stock at a 16% discount, not much of a dividend yield here. It’s probably six tenths of a percent or so, a company with a High Uncertainty Rating. But we do award it a wide economic moat, primarily on switching costs. But the network effect is a secondary moat source here as well.
Dziubinski: Now talk a little bit, Dave, about how Salesforce fits in as a company that’s an AI play today.
Sekera: So overall, to me, it’s kind of a play on the theme I’ve talked about for the first half of the year. That I think the market’s really at the point where it’s going to start shifting its focus on investing in AI, away from the hardware companies away from the Nvidias of the world, where people have a much better grasp and understanding of the valuation there, versus what we had a year or two years ago, and looking for those companies that, ultimately, will be able to use AI to drive top line growth and/or use AI within their own businesses to be able to generate greater efficiency and be able to generate long-term operating margin growth expansion. So, for example, with this company, specifically, sales of Agentforce, which is its AI-powered platform, is showing a lot of strength has over 100 million dollar revenue run rate, even though it’s only been available for the past two quarters. So I think this stock kind of falls into that theme. When I’m looking at some of the metrics here, not necessarily expensive from a P/E point of view, trades at 24 times this year’s earnings, 21 times next year’s earnings. So overall, we do think this is a buying opportunity.
And I just note, too, that our tech sector analysts noted that within that sector, this one has one of the best combinations of top line growth potential, margin expansion potential, and has a strong balance sheet. So the stock has fallen 18% year to date, hasn’t bounced with a lot of the other AI stocks. So again, I think this is one where the market is giving you a bit of an opportunity here.
Dziubinski: Your next pick this week, in keeping with that AI theme, is Taiwan Semiconductor. Run through the key metrics on it.
Sekera: Yeah, I kind of went back through the archives here, so Taiwan Semi was a pick of ours back on the Feb. 26, 2024, show. It’s up 76% since then.
We reiterated that pick on the Aug. 5 show in 2024. It’s up over 50% since then. So I have to caution, to some degree, I think the easy money has been made on this stock. But as far as AI goes, one of the few undervalued stocks left, 4 stars, 13% discount at this point, only a 1.4% dividend yield. But we rate it only with a medium uncertainty. And we do rate the company with a wide economic moat. Its moat sources being its cost advantage and intangibles.
Dziubinski: Now it’s a little bit more obvious here how Taiwan Semi fits in with that AI theme, right?
Sekera: Yeah, I mean, as much as I talked before about how I think the market’s focus is going to shift toward companies that can utilize AI, as opposed to the hardware manufacturers. In this case, Taiwan Semi is the company that actually utilizes the designs from Nvidia to be able to manufacture the GPUs, the semiconductors, and the chipsets for Nvidia.
So it is more of the hardware side. But when we think about this company, and as far as their competition out there, we think it’s the most technologically advanced chip manufacturer. They have the most expertise at manufacturing the cutting-edge semiconductors. So we still think it’s undervalued at this point. It’s just no longer nearly as undervalued as it had been in the past.
Dziubinski: Your final two picks this week are completely different again. They’re two energy picks. So the first one is a stock we’ve talked about before as one of your favorite core stocks, Exxon Mobil. Tell us about it.
Sekera: Yeah, so I mean, Exxon is still a 4-star rated stock at a 19% discount, pretty decent dividend yield at 3.6%. Now, energy company, oil and gas, of course, we rate it with a high uncertainty, but we also rate this one with a narrow economic moat, based on its cost advantages. And this company also is doing some pretty large share repurchases as well, so as they’re buying back that stock, over time, we think that that economic value will accrete to shareholders.
Dziubinski: So then why energy right now, Dave? And why then do you like Exxon Mobil, specifically?
Sekera: Yeah, so I think energy overall does provide kind of that good natural hedge in your portfolio. As far as if inflation were to come back, I think as it goes up, this will help protect you. As well as any other kind of rebound in geopolitical conflict, as we saw with the Israeli-Iranian conflict, oil prices did bounce. Now they’ve come right back down as that conflict, I think, lasted a lot shorter time frame than maybe people had expected. But if there was a geopolitical event that does keep oil prices higher for longer, then energy will help insulate your portfolio from some of the other losses that you’ll probably end up taking.
Now, longtime viewers of The Morning Filter are probably tired of hearing me talk about Exxon, but it has been long our pick for the global major energy producers. Just taking a look at kind of the investment thesis here, we are still forecasting production will grow modestly through 2027. We’re looking for an increase in profitability over the next couple of years as we get that mix shift to higher-margin-producing fields. Oil stocks overall are undervalued, even though we have a bearish view on the price of oil. So that’s one of the reasons I like this sector is that even that we think oil prices will fall to $55 a barrel for West Texas down to $60 a barrel for Brent, over the long term, when we still put that into our models over kind of that mid-economic-cycle forecast, these models still show us that these companies are undervalued here.
Dziubinski: And then your final pick this week is another energy name, but this one we haven’t talked about before, I don’t think. It’s H.F. Sinclair. Tell us about it.
Sekera: Yeah, I think this is a new name for people that want to take a look at it. The ticker here is DINO D-I-N-O, and they own and operate seven different refineries. It’s a 4-star-rated stock, at a 19% discount, 4.9 dividend yield. Now, this one is a very high uncertainty, so probably more appropriate for investors that are able to take a little more risk in their portfolios. Just taking a look at what this company does, again, it’s in the refining business. Refining is going to be pretty volatile, pretty cyclical. Pretty rarely do I recommend high uncertainty stocks. And this is also just kind of one of the few small refineries that’s been built, or not built but has really been out there and available for shareholders to invest in.
One of the things I kind of like about the refinery business overall is that while there has been some expansions to existing facilities, and again, I have to admit, I cheated. I looked this up on ChatGPT last night, but the last major new refinery built in the United States was back in 1977. So again, there’s just so many rules and regulations out there that, it doesn’t look like there’s new refineries being built, in the future, at least to any size. So I think that also kind of really helps bolster the economic moat here, which in this case, is a narrow economic moat, based on cost advantages, based on where those refineries are located.
Dziubinski: Yeah. And you mentioned, Dave, that this one is a higher uncertainty stack. It’s also a smaller company. So more of a long-term play on this one, right?
Sekera: Yeah. And I mean, not necessarily because it’s a small company, but fundamentally, our investment thesis here is we do think this one is much more of a turnaround story candidate. So, when I take a look at our model, we are forecasting that the company’s relatively poor performance and refinery over the short term will end up improving over the longer term. We’re seeing some positive signs of that in the last quarterly results. In the meantime, while they’re looking to improve their refining margins, they’re supported by pretty good results in their marketing, their specialty lubricants, and their midstream businesses. Taking a look at the stock trend, it’s been on a downward trend for over the past year, and that’s because refining margins have been pretty thin. Maybe it’s bottomed out here in April, so this might be a pretty good time to start at least doing your homework. And if this is one you have an interest in, maybe starting off with some small positions and having that cash to dollar-cost average in, if this one were to continue its downward trend.
Dziubinski: All right. Well, thank you for your time this morning, Dave.
Those who’d like more information about any of the stocks Dave talked about today can visit Morningstar.com for more details. So we hope you’ll join us next Monday for a special edition of The Morning Filter. We’ll be airing the episode that Dave and I taped at Morningstar’s investment conference last week. We’ll be streaming the episode at 9 a.m. Eastern, 8 a.m. Central. And in the meantime, please like this episode and subscribe. And happy Fourth of July.