Podcast Summary: The Long View – "The Morning Filter: 5 Rallying Stocks to Buy in June While They’re Still Undervalued"

Release Date: June 16, 2025
Hosts: Christine Benz, Dan Lefkovitz, Amy C. Arnott
Episode Focus: A deep dive into current market conditions, economic indicators, geopolitical tensions, and strategic stock picks poised for growth despite recent rallies.

1. Introduction to the Morning Filter

In this bonus episode of The Long View, Morningstar’s Chief US Market Strategist Dave Sicara and Investment Specialist Susan Jabinski co-host The Morning Filter. The segment is designed to provide investors with critical insights for the week ahead, including market outlooks, economic data interpretations, and strategic stock recommendations.

2. Geopolitical Impacts on Markets

Israel-Iran Conflict: Susan initiates the discussion by addressing the escalating conflict between Israel and Iran, highlighting its immediate effects on the stock market.

• Market Reactions: "On Friday, we saw stocks pull back, oil prices rise, and the US Dollar strengthen," Susan notes ([02:25]).
• Dave’s Analysis: Dave observes that while the conflict persists, it hasn't expanded beyond Israel and Iran. "Stock market futures are actually in the green this morning, signaling a relief rally," he explains ([02:25]).

Oil Prices Watch: Dave emphasizes the importance of monitoring oil prices as an indicator of the conflict’s severity. “If you were to see those oil prices spike, that’s certainly going to indicate things are getting worse,” he remarks ([02:25]).

3. Economic Indicators & Tariffs

CPI and PPI Insights: The conversation shifts to recent economic data, specifically the Consumer Price Index (CPI) and Producer Price Index (PPI), which came in better than expected.

• Impact of Tariffs: Dave expresses skepticism about the immediate impact of tariffs, stating, “disinflationary forces have still been able to more than offset any of the impact potentially from tariffs” ([03:42]).
• Future Data Needs: He suggests waiting for several more months of data to accurately assess the tariffs' effects on the economy and corporate earnings ([03:42]).

4. Federal Reserve Outlook

Rate Cut Probabilities: Susan brings up the upcoming Fed meeting and the market’s stance on potential rate cuts.

• Current Market Sentiment: Dave confirms that the market currently prices in no rate cuts for June ([05:35]).
• Future Expectations: Looking ahead to the July and September meetings, Dave outlines the probabilities of rate cuts, citing an internal Morningstar forecast of two cuts by year-end ([05:55]).

5. Earnings Season Insights

Key Company Reports: Dave highlights several companies set to report earnings, focusing on those that can provide insights into broader economic trends.

• Lennar: As the second-largest home builder, Dave expects Lennar’s earnings to shed light on the new home market's strength amidst declining housing starts ([06:29]).
• Carnival Cruise Lines & Darden: These companies serve as bellwethers for consumer sentiment, with Dave noting their roles in gauging discretionary spending ([06:29]).
• Kroger: Insights from Kroger could reveal trends in consumer purchasing habits, impacting other retail sectors like Dollar Tree and Dollar General ([06:29]).

6. Morningstar Research Highlights

Adobe Stock Analysis: Susan inquires about Morningstar’s stance on Adobe following its earnings report.

• Fair Value Adjustment: Dave explains the reduction in Adobe’s fair value estimate due to lowered growth assumptions, yet maintains a positive outlook with a four-star rating and a 30% discount ([09:52]).

Chewy’s Valuation: The discussion moves to Chewy, a stock that saw an 11% sell-off post-earnings.

• Valuation Perspective: Despite solid performance metrics, Chewy remains overpriced at a two-star rating with a 30% premium ([11:18]).

Papa John’s Takeover Rumors: Susan brings up takeover talks surrounding Papa John’s.

• Dave’s Take: He remains cautious, highlighting the company’s leverage issues which could complicate any buyout efforts ([12:20]).

7. Tariffs and Trade Deals Analysis

Discussion with Damian Conover: Susan interviews Damian Conover, Morningstar’s Director of Equity Research, about the implications of tariffs and trade deals.

• Scenarios Considered: Damian outlines three scenarios—bear, base, and bull cases—evaluating different tariff rates and economic growth impacts ([15:33]).
• Bear Case Impact: In a worst-case scenario with 18% tariffs and low growth, consumer cyclical and basic materials sectors could face over a 20% valuation hit ([16:46]).
• Sector Resilience: Defensive sectors like utilities, consumer defensive, and healthcare remain resilient, showing minimal valuation impact even in adverse scenarios ([20:55]).

Investment Advice Amidst Tariff Uncertainty: Damian offers three key investment strategies:

1. Long-Term Focus: Emphasize long-term investing to navigate market volatilities.
2. Valuation Opportunities: Utilize market pullbacks as entry points for undervalued stocks.
3. Moat Ratings: Prioritize wide moat firms with strong pricing power to withstand tariff-induced pressures ([22:17]).

8. Defense Sector Updates

Boeing and Lockheed Martin: The conversation shifts to defense stocks affected by recent events.

• Boeing: Despite a stock dip following a tragic crash, Dave remains cautious, awaiting investigation outcomes to determine long-term impacts ([23:45]).
• Lockheed Martin: A reduction in F35 jet orders has minimal immediate impact, as orders remain robust. The stock maintains a four-star rating with a slight discount ([27:11]).

9. Stock Picks: 5 Rallying Stocks to Buy

Dave Sicara presents five Morningstar-rated stocks that have rallied yet remain undervalued. Each stock is analyzed for its potential growth and current valuation.

1. Nutrien

   • Rating & Discount: Three stars at a 10% discount.
   • Performance Drivers: Potash price improvements and strong demand projections.
   • Quote: “Nutrien is still at a 10% discount and it does yield 3.5%,” Dave highlights ([28:39]).

2. Barrick Mining (formerly Barrick Gold)

   • Rating & Discount: Four stars at a 10% discount.
   • Catalysts: Potential restart of the Mali mine and positive gold price trends.
   • Quote: “Production to restart in the next couple of months is a good catalyst for this stock,” Dave notes ([31:19]).

3. American Tower

   • Rating & Discount: Four stars at a 12% discount with a 3.2% dividend yield.
   • Resilience: Strong same-store tower growth and defensive real estate positioning.
   • Quote: “A good defensive real estate play with strong organic growth and margin expansion,” Dave explains ([33:21]).

4. ASML

   • Rating & Discount: Four stars at a 21% discount with a 1.1% dividend yield.
   • Growth Potential: Leading position in photolithography systems for semiconductors.
   • Quote: “ASML is the leader in photolithography systems used for manufacturing semiconductors,” Dave states ([35:30]).

5. Medtronic

   • Rating & Discount: Four stars at a 22% discount with a 3.5% dividend yield.
   • Long-Term Growth: Strong earnings forecasts and significant stock repurchase plans.
   • Quote: “Medtronic has a 3.3% dividend yield and is up about 9% year-to-date,” Dave remarks ([36:39]).

10. Conclusion and Next Steps

Susan wraps up the episode by encouraging listeners to visit Morningstar’s website for more detailed stock information and to join future episodes of The Morning Filter. She also reminds listeners to subscribe and engage with the podcast for ongoing investment insights.

Notable Quotes:

• Dave Sicara on Tariffs: “Disinflationary forces have still been able to more than offset any of the impact potentially from tariffs” ([03:42]).
• Damian Conover on Investment Strategy: “Keep thinking about investing for the long term” ([22:17]).
• Dave on ASML’s Growth: “ASML is the leader in photolithography systems used for manufacturing semiconductors” ([35:30]).

Key Takeaways:

• Geopolitical tensions between Israel and Iran are closely monitored for their impact on oil prices and market stability.
• Economic indicators such as CPI and PPI show favorable trends, but the influence of tariffs remains uncertain.
• Federal Reserve actions regarding rate cuts are pivotal, with projections of potential cuts later in the year.
• Earnings reports from key companies provide insights into broader economic health and sector-specific trends.
• Tariff impacts vary across sectors, with consumer cyclical and basic materials being most vulnerable in adverse scenarios, while defensive sectors remain resilient.
• Strategic stock picks identified by Morningstar offer opportunities for growth despite recent market rallies, emphasizing undervalued stocks with strong fundamentals and growth potential.

For more detailed analysis and updates, visit Morningstar.