Plus, earnings season kicks off with big banks.
Key Takeaways
- Why have stocks been resilient even as interest rates rise, and what’s going on in the Treasury market?
- What new inflation data will mean for the Federal Reserve.
- What to watch when big banks, including JPMorgan Chase JMP, Bank of America BAC, Goldman Sachs GS and more report earnings.
- Chip stocks: What ASML’s ASML earnings report could reveal about the state of the semiconductor industry, and why we raised our fair value estimate for Marvell MRVL.
- How to use a barbell strategy when Big Tech looks undervalued.
- Sell these stocks for tax-loss harvesting.
In this new episode of The Morning Filter podcast, co-hosts Dave Sekera and Sarah Hansen cover why the stock market has been resilient even as interest rates continue to rise in the United States and abroad.
They look ahead to inflation data and big bank earnings next week. They cover what to watch for in ASML’s upcoming earnings report and discuss why Morningstar raised its fair value estimate on chipmaker Marvell to $360.
They answer a viewer’s question about the barbell strategy as it relates to undervalued tech stocks, and dig into Dave’s list of five stocks to sell for tax-loss harvesting.
Got a question for Dave? Send it to [email protected].
Transcript
Sarah Hansen: Hello and welcome to The Morning Filter podcast. I’m Sarah Hansen with Morningstar, sitting in for Susan Dziubinski while she’s on her sabbatical. I’m here on Monday mornings for the next six weeks to talk with Morningstar chief US market strategist, Dave Sekera, about key takeaways for investors in today’s market, what to keep on radar this week, some new Morningstar research, and a few stock ideas. Before we get started, we have a programming note. Dave and Morningstar chief economist Preston Caldwell will be sharing their forecasts for the fourth quarter in a bonus episode of The Morning Filter that will drop this Thursday, Oct. 15. You can find it wherever you get your podcasts.
Key Market Takeaways
So, good morning, Dave. It’s great to join you bright and early today. Let’s jump in with your key takeaways from the market activity last week. It was a pretty quiet week by some standards. Stocks seem to have held in even as interest rates continue to rise. What do you make of that?
David Sekera: Hey, good morning, Sarah. Thank you for joining us. I appreciate it. Taking a look at the market, it’s actually kind of interesting. Last Friday, the S&P 500 closed just a hair below its all-time high, which it had hit last Tuesday. Why is the market still continuing to head up into earnings season? I don’t know. To some degree, I think it’s just the continued momentum that we’ve had for the past couple of weeks. Overall, the market’s still just completely focused on the AI buildout boom, not concerned at all about any of those macro dynamics that we’ve been talking about that have all been weakening for several months now. For now, it seems like the equity market is just only marginally concerned about high interest rates. As we’ve talked about before on the podcast, really, I mean, those companies that are investing the most into artificial intelligence today just have not been dissuaded from continuing that really rapid buildout that we’ve seen.
They’re just building as much capacity as they can, as fast as they can. And in my mind, there are really just two reasons for doing it. One, the expectation for so much growth in the future for artificial intelligence compute demand; it just doesn’t matter what the current conditions are. And secondly, I think that there’s also just a huge fear at those companies of being left behind, that if they don’t keep up with the AI buildout boom and they get left behind, that’s really existential risk for those companies.
Hansen: Right. At the same time as that buildout is happening, bond yields have been on everybody’s mind these past few weeks. What are you seeing in the Treasury market?
Sekera: It’s interesting. The Treasury market started pretty weak at the beginning of last week. In fact, the 10-year US Treasury got as high as 5.36% on Wednesday, but then the buyers just really started to come out of the woodwork. There’s a very good US Treasury auction for the 10-year. That went better than expected. I think that was the relief signal that at least we’re seeing here in the short term. Had enough of a rally; the 10-year got down to 5.24% at the end of last Friday. A little bit weaker, 5.25% this morning, but hopefully I think that’s a pretty good signal that the worst might be behind us. But again, we’re keeping a close eye on that 10-year. If it really starts to weaken too much from that 5.25% level, then I think 5.5% is probably the next stop thereafter.
Again, it’s not just here in the US. Really, across all of the developed markets, long-term rates have really done the same thing. They’ve all widened out a good bit. We’ve seen a really steady pause, I would call it, this past week. For example, in Germany, which is what I consider to be the benchmark bond in Europe closed last Friday at 3.5%, but a lot of those other countries that have more credit risk are still at much higher yields, like Italy’s at 4.59%, Spain at 4.1%. But really, the most concerning aspect to me in Europe right now is France. France’s bond is at 4.86%. Now, France is still rated AA3 by Moody’s, A-plus by Standard & Poor’s, but that 4.86 is essentially 140 basis points over German bonds. It’s trading at a wider spread than what we’re seeing for both Italy and Spain, indicating that the market is getting very concerned about credit continuing to worsen there.
Now, I think Moody’s has their annual review coming up later this month. Honestly, I wouldn’t be surprised to see them downgrade the country at least one notch there. To put this all into perspective, at 140 basis points over, if you were to look at corporate bonds, really that’s much more indicative of a weak single A, maybe even upper BBB. We could even see further rating downgrades ahead if we stay at these kinds of levels. Japan, we’ve talked about in the past, just a hair above 3%. That’s a 10 basis point improvement from the highs, but still well higher than what we’ve seen in that country for a long, long time. Overall, I’d say my takeaway here is we are seeing buyers coming out at these elevated levels. I wouldn’t say it’s enough to call it a change in trend, but certainly good news for now.
Hansen: What about oil prices? Another market mover these last couple of weeks?
Sekera: Yeah, it’s been bouncing between, I would call it, the upper $80s, low $90s for a bit of time now. Took a quick look; it’s trading unfortunately at $93 this morning, so it has moved up a little bit over the course of the weekend. Some more conflict in the Middle East with Iran, but again, it’s not to what I would call scary levels to the upside, but still certainly higher than any of us would prefer.
Hansen: Great. So, turning back to stocks before we move on, let’s talk about market breadth. Just how narrow is the leadership we’re seeing right now?
Sekera: It’s very narrow. There are really a couple of different statistics that I watch when I’m thinking about market breadth. The first one I would look at is the number or the percentage of stocks in the S&P 500 that are above their 200-day moving average, and then a little bit narrower focus there, looking at those above their 50-day moving average. You have what’s called the advanced decline line, and then looking for the number of stocks that are hitting new highs versus the number of new lows. Overall, last week starting to get better, so it was better on a week-over-week basis, but still much lower than what we saw a month ago.
I’d say the takeaway here is starting to get better, but it’s still worse than what you’d expect when you’d expect to see much better breadth, and what’s really been a robust bull market for quite a while. I think the real indicator, though, with those breadth numbers, isn’t so much where we’ve been the past couple of weeks going into earnings season. I think it’s going to be during earnings season itself as companies are reporting: Do we see any of those indicators still get better over the next few weeks, or do they turn around and get worse again? I think that’s going to be the real indicator for how the market’s going to trade into year-end.
On Radar: Inflation
Hansen: OK. Let’s look forward now. First, we can talk about economic data. So, this coming week we’ll see two pieces of data that help us paint a picture of inflation. We’ll see the Consumer Price Index and the Producer Price Index. What are the expectations there, and how do you expect that data to impact the Federal Reserve?
Sekera: Well, I think it’s going to impact what the Fed may do both at the October and potentially at the December meeting. As a reminder, there is no November meeting. The October meeting is held on the 27th and 28th; the next meeting then being Dec. 8th and 9th. As far as what the market is pricing in right now for headline CPI, they’re looking for a 0.6% increase on a month-over-month basis. That’d be worse than the 0.4% last month. And then the same thing on a year-over-year basis, looking for 3.6%, a little higher than what we saw, 3.4%, last month. Of course, everyone likes talking about core, stripping out the more volatile components. That looks a little bit better on a month-over-month basis, coming in at 0.2% versus 0.3% last month, and a little worse on a year-over-year basis, up 2.5% versus 2.4%.
As far as headline for PPI, that’s expected to be up 0.5% month-over-month versus 0.4% last month. And then core PPI, 0.3% increase month-over-month versus 0.2% of an increase last month. And then when I think about the difference between PPI and CPI, I think of PPI as really being a leading indicator for CPI. In my mind, when I look at all these consensus estimates on both that month-over-month basis versus the year-over-year basis, it still seems like inflation overall is still getting at that slightly getting worse stage as opposed to getting better.
Big Bank Earnings
Hansen: Let’s move on to earnings season, out of economic data, back into stocks. We’ll get underway next week with reports from the US mega banks and the US investment banks. What will you be listening for there?
Sekera: Yeah, so we’ve got the Big Four US mega banks: JPMorgan JPM, Bank of America BAC, Wells Fargo WFC, Citi C, but you also have a number of the larger regionals as well, like U.S. Bancorp USB and Bank of New York BNY. Overall, I don’t think there’s going to be any near-term issues. I don’t see any reason why they shouldn’t be able to meet or beat their typical guidance. To me, it’s really going to be much more about going through the transcripts afterward, looking through their commentary on things like charge-offs and loan-loss reserves, both as far as what’s going on with the individual retail consumer as well as with their corporate and industrial loan books as well.
I’d like to hear if there’s any meaningful impact on rising rates on their hold-to-maturity books, but I’m not that concerned about it at this point. I mean, if you remember, rising rates is what caused the problem a number of years ago with Silicon Valley Bank. In this case, we’re in a very different situation. Back then, the federal-funds rate had risen 450 basis points prior to the failure at Silicon Valley Bank. The tenure had gone up 250 basis points. So, we’re not anywhere near those kinds of levels, so it’s not like I’m looking for banks really to have materially weaker and weaker credit profiles at this point.
And then last, we also have a couple of the investment banks coming up. We have Goldman GS and Morgan Stanley MS. Should be pretty strong results. I think their investment banking divisions and their trading desk all should be looking pretty good, with markets pretty much at their all-time highs, with assets under management all being high. They should have very good fee income coming in there.
Really, the only thing I’d be looking for is if they had any commentary on the timing for the Anthropic IPO, which is expected after Thanksgiving. Also curious what other IPOs they have on deck. It’s interesting that the window to the new-issue market is open, but I’ve also seen a couple of IPOs out there that have tried to come to market fail. While the window is open, the market is still concerned about which ones they’re willing to buy off on.
ASML: Spotlight on Semis
Hansen: OK. In addition to the banks, we’re going to hear from chip designer ASML ASML, which will report earnings, too. What will you be watching for there?
Sekera: Yeah. Well, as you mentioned, ASML, I think, is really an early read on what you expect for continued growth in the semiconductor market because ASML, of course, they’re the ones that make the equipment, which is then used to manufacture the semis. Again, it’s a leading indicator as far as people having to buy that equipment to be able to continue to build out new fabs. Now, looking at the stock, it’s currently a 3-star stock, but it had peaked in June, hitting a 2-star. It’s rolled over. It’s in that 3-star territory. It’s interesting to see that the market pulled back its expectations, but to the point where it bottomed out pretty quickly. I think the question here is going to be, will the results be strong enough to satisfy the market? If so, it certainly shows that there’s going to be more upside potential in the short term, yet at the same point in time, after having fallen from its highs, I think it also has the potential to fall even further from here.
From our point of view, thinking about the long-term intrinsic value of the company when it’s already a 3-star-rated stock, unless there’s something that’s substantially different from the expectations we currently have in our model, probably nothing to do, but we’ll take a look and see if there are any implications here coming out of ASML for the other semiconductor stocks.
MRVL: Raising Fair Value
Hansen: OK. Sounds like one to watch. Staying within the semis universe, let’s move on to some new research. Shares of chip designer Marvell MRVL also jumped last week after its investor day. What did we learn there and what are your takeaways on Marvell stock?
Sekera: Yeah, I mean, it was a really strong investor day, and I think once we updated our model and included all the new information that came about really was the genesis for increasing our fair value up to $360 a share from $300. A pretty big bump in that fair value for a company that we’ve been quite constructive on for quite a long period of time. Now, specifically, our analysts noted that management’s guidance now is essentially looking for 58% annualized revenue growth through calendar 2030. I mean, that’s just a crazy amount of growth annually for the next several years yet to come.
Just to put that into perspective, they’d be looking for $80 billion of revenue and $30 billion of earnings based on the midpoints of their guidance. In calendar 2025, which was fiscal 2026, they only did $8.2 billion in revenue and $2.84 in earnings; just giant amounts of growth that the company is going out to the marketplace. Like most management companies, I suspect that they’re probably keeping a little bit back. I mean, most companies like to underpromise, overdeliver, but yet they’re still telling the market it’s going to be essentially a factor of 10 times the size of the company from 2025 through 2030. Once we adjusted our model upward to capture that, that led to our fair value increase. Stock looks attractive to us here at a 24% discount. That’s enough to put it in 4-star territory.
Earnings Recap: STZ
Hansen: OK, thank you. Last week we heard from Constellation Brands STZ as well, a company that’s come up on the podcast before. What did we learn there?
Sekera: The earnings themselves on both the top line and the bottom line came out much better than expected, but I have to note that there are both positive as well as negative caveats to the better-than-expected results. So, on the positive side, second-quarter fiscal 2027 organic sales came out at up 6%, very happy with that number. The beer business was up at 5%, wine and spirits up 17%. Of course, that’s a very small percentage of their overall sales, but again, some very strong increases. Sounds great, but unfortunately alcohol consumption in general continues to decline.
Our analysts noted that beer depletions declined by 0.6%. When I look at the numbers that they posted, really that indicates that the company’s either restocking or inventory build, but when you’re thinking about future demand, you really have to think about what’s going on with the depletions that they’re seeing. I mean, some of the good news is that some of the brands like Pacifico and Victoria are still growing, doing very well, so that helps make up for some of the losses in Corona and Modelo and just the general drawdown in alcohol consumption overall.
Unfortunately, the operating margin contracted 160 basis points. They were able to push through a lot of their own higher costs. Overall, management reiterated its 2020 … I’m trying to remember what fiscal year it’s in, but they reiterated their guidance for this year, looking for a range of $11.20 to $11.90 per share. That’s pretty much in line. Our forecast is $11.76 per share, so a little bit higher than the midpoint, but not all the way at the top of that range. Stock’s only trading at a little over 10 times earnings right now, so that tells me the market’s probably still pricing in continued slow contraction in the near term.
Looking at our model, I mean, we’re looking for the top line to be flat over the next year. We’re looking for a compound annual growth rate over the next five years of only 1.2%. Essentially still looking for less volume, but making up for that probably on the pricing, but that’s still less than the rate of inflation. As far as earnings, we’re looking for only 2% growth next year, getting just a hair over $12 a share. We’re looking for some margin improvement, not a lot, but just enough to get to a compound annual growth rate of 2.9% over the next five years. Really a very low growth rate, but even with those very low growth rates in our models over the next five years, it still trades at a 29% discount to fair value, has a 3.4% dividend yield, 4-star-rated stock.
I think this is one where, if you’re involved in it, it might just be a bit of a coupon clipper for a while, where you’re capturing that dividend yield. Might take a while for that really to start turning around and moving to the upside. Really need to see the beer market overall really starting to climb back up. And once that happens, and the market starts to price that in, it looks like some good upside, but again, might be one where you have to wait a bit.
Tech Stocks and the Barbell Strategy
Hansen: OK. Another one to watch, it sounds like. Thank you, Dave. It’s time for our question of the week now. As a reminder, if you have a question for The Morning Filter, you can reach us via email at [email protected].
This week’s question comes from Isaac, who asks Dave about the barbell strategy. Isaac wants to know how to decide whether to continue to hold 4-star tech stocks as part of that strategy and how to decide whether to trim exposure even if those stocks are looking undervalued. Dave, talk us through it. I love this question.
Sekera: Well, and it’s a great question, and we’ve talked about this a couple of times with what’s going on between the focus on all being about the AI buildout boom, the negative macro dynamics, and looking at the valuations. It’s probably one of the most tricky environments to invest in today that I can think of, at least really since prepandemic. Now, the market right now is trading, I’d call it, about an 8% discount to a composite of our fair values. It’s a little bit less of a discount than at the end of September, when it was trading at a 10% discount, but we have had the market move up since then. But that discount, as we noted in our outlook, is very concentrated in what I call now the undervalued seven; close to, but not necessarily the Mag Seven.
In my mind, you want to have a market weight in equities overall. Then within that, you want to have this barbell-shaped portfolio of being overweight value, overweight growth, and then to pay for that, you have to underweight core. The reason being that we do see better valuations in those categories, but within those overweight, especially on the growth side, you want to be overweight in those seven stocks within the growth category. In my mind, yes, you want to still hold those 4- and 5-star-rated tech stocks that are in the growth category. However, you need to really focus on those that are significantly undervalued: Nvidia NVDA, Broadcom AVGO, and Tesla TSLA, and some of those other 4- and 5-star growth stocks. But realistically, with that concentration in undervaluation, it’s not like other periods of time where you could use an ETF or a growth mutual fund to get that overweight category. Again, it’s different in my mind.
Now on the value side, the undervaluation we see is more broadly spread out there. So, yes, you can still invest in and get that overweight with the 4- and 5-star-rated value stocks, or in this case, I think you can also use ETFs and mutual funds to get to that overweight. And then in core, because we want to underweight core to pay for those overweights, you really need to focus on those undervalued stocks. In this case, Microsoft MSFT, Alphabet GOOGL, Amazon.com AMZN, Meta Platforms META, because they’re all in the core category, and then you really want to underweight the ETFs and the mutual funds within the core category and really focus on just those stocks even within the underweight overall. Hopefully that’s not too convoluted.
Hansen: Well, Isaac asks a great follow-up, so we’ll ask you, too. When do market factors, the dynamics of the broader market, start to outweigh just how undervalued those individual tech stocks are? How do you balance that?
Sekera: Yeah, and that’s a really hard question to answer, and I’ve been debating this one in my own mind for really the past couple of months now as I watched those negative macro dynamics unfold. Now, if you remember back in 2022, at the beginning of the year in our 2022 outlook, that’s when we actually recommended to investors to underweight the US stock market overall as a percentage of their typical portfolio allocations. In fact, that’s the only time that we’ve actually gone to that official underweight recommendation since. We’ve gone between market weight and overweight a couple of times since then.
I guess the question you really get to is, well, what’s different now versus why we were forecasting to underweight the market overall then? Back then we were forecasting rising inflation. We were looking for the Fed to start tightening monetary policy. We’re looking for interest rates to go up. We were looking for the US economy to slow, and the market at that point in time was trading at about a 6% premium over that composite of fair value. With all that put together, that then was actually a pretty easy decision for me to say, “Yeah, time to start to underweight the US equity market.” Well, today it’s a similar but different situation. Today, inflation is still creeping higher—but I would say creeping higher, not necessarily skyrocketing higher. The Fed has started to tighten monetary policy. They’ve already hiked once. We expect another hike, but we don’t expect any hikes after that. Long-term rates have increased by a hundred basis points, but it hasn’t been enough to spook the US equity market just yet, and we’re still looking for economic growth. We’re looking for slightly slower economic growth for that still to be positive.
Again, what’s different today is inflation going up, but at a much slower rate than what we were expecting back then. Back then, the fed-funds rates essentially went from zero to over 4%, so we’re not looking for anywhere near that same kind of magnitude of change. Back then, the US Treasury, if you remember, was all the way down at 1.5%, going up to 4%. Again, a much less change as to what we’ve seen today. GDP did decline in the first quarter and second quarter of 2022. Preston, our US economist, is not looking for GDP decline, just maybe for a slower rate of growth over the foreseeable future. And of course, at that point in time, the market overall was trading in a 6% premium as to being an 8% discount right now. Again, the macrodynamics are going the wrong way, but, in this point, not enough for me to really think about wanting to hold or go to an underweight recommendation.
The things I’m probably watching most closely right now will be the jobs market. And as much as I hate the payrolls number, it’s really one of the better numbers we have out there. As long as jobs hold up and the economy holds up, I think that’ll be an offset to those other negative macro dynamics. If inflation moderates, and especially if you think about the start of the conflict with Iran last spring—I think it was the end of February, beginning of March—it won’t be that much later until we start lapping those oil price increases. So, that will take a little bit of the air out of the rate of inflation. We don’t think the Fed’s going to make any additional hikes to the fed-funds rate after that last hike we’re expecting in December. As long as interest rates don’t really rise meaningfully from here, it’s a headwind, but it’s not necessarily enough to cause me to want to start underweighting equities. Now, if we start getting above 5.5% and it looks like we’re going to get to a 6% handle, that’s going to be a different story. I think this is just one of those times that they say the market climbs a wall of worry, and we’re certainly in that time where we’re climbing that wall of worry for now.
Tax-Loss Harvesting
Hansen: Great. Well, thank you, Dave, and thank you, Isaac. That’s a great question. And moving on, it’s time for the stock-pick portion of the program. Dave, this week you’ve brought us five stocks to sell for the purposes of tax-loss harvesting. First, can you walk us through the basics of that strategy? Why is now a good time to think about it? We’re in the middle of October.
Sekera: I think partially it’s because we still have two and a half months left in the year, so you don’t feel like you have to hurry up and make any decisions that maybe you shouldn’t have been making, but you felt like, because of the timing, it pressures you into doing it. Now, I think, is a good time, especially with as much as the market’s not only risen this year, but back in 2024 and 2025, to look and see where you have capital gains, where maybe you want to capture some of those capital gains you have. You’ve got enough time to look through your portfolio and see where there might be some ways to offset those gains with some capital losses. Now, very difficult finding those stocks with capital losses today, but again, I think this is a good way of forcing yourself to sell some of those stocks that are losers, especially those where maybe the outlook is still relatively poor or at least the valuation is poor.
Hansen: Yeah. You mentioned this was a hard list to put together. Tell us about what criteria you used to screen. How did you select these five stocks?
Sekera: I mean, just using a number of the different screener tools at Morningstar. First of all, I excluded anything that was like a 4- or 5-star-rated stock. Those stocks, even if there are those losses in there, you might want to hold those because they are undervalued. I was looking ideally for a stock which is rated 1 or 2 stars, stocks that we think are overvalued, although I did keep 3-star stocks in there as well. Tried to look for stocks that had embedded losses, depending on when you may have bought them. I looked over different time periods—anything from year to date, past 52 weeks, past three years, past five years—looking for stories would have what I consider to be a negative investment thesis; I looked at the charts, anything that looked at maybe negative price momentum in there. And just trying to find those stocks was actually a really narrow portfolio, which is also why I kept a lot of those 3-star stocks in there as well, because at 3 stars, yes, it’s fairly valued; yes, over the long term, you’d expect it to go up by at least the company’s underlying cost of equity. Having said that, you can sell those stocks, get the value of that loss against where you want to take gains, and then reinvest those proceeds into some of the other stocks that we think are significantly undervalued where you can get that margin of safety below the long-term intrinsic valuation.
Stock to Sell: RBLX
Hansen: OK. Number one on the list, Roblox RBLX. This isn’t the first time or even the second time that you recommended that investors sell this stock. What does Morningstar think of Roblox today?
Sekera: Yeah, our analyst had a really good call on the stock. It was a sell recommendation both on the June 9, 2025, and the Nov. 24 episodes of The Morning Filter. Since both of those time periods, the stock is down over 50%. Now it’s fallen enough. It is a 3-star-rated stock at fair value, but it is a stock or a company we rate with a Very High Uncertainty, and we do rate it with a narrow economic moat.
Hansen: Roblox is trading at $45. You mentioned 3 stars; that’s within our range for fairly valued. Do you think it has further to fall?
Sekera: Maybe. I mean, it’s always hard to know what a stock is going to do in the short term, but taking a look at that kind of negative price momentum, certainly not necessarily a good chart that you’d want to see. Now, in this case, getting to the fundamentals, our analyst noted the second-quarter results were really bad, and the thing that really stood out to him was that the booking rate was only up 8%, whereas it had been up 19% in prior quarters.
Now, bookings is what he uses as an indicator of future growth. Bookings represent the total value of Robux, which is their virtual currency, and other purchases online. If people are buying that virtual currency, they’re of course going to spend it and then turn it into revenue. Now, at the same point in time, management guided toward a weak third quarter, and they suspended their full-year guidance, meaning that they didn’t have enough confidence in their own outlook to be able to keep that guidance out there. That even then caused us to lower our fair value, which was already below market by 18%, down to $45 a share.
Now, the stock did sell off. It bottomed out. Maybe it’s trying to creep higher at this point. So, is the weakness already priced in? Really no way to know, but in my own personal opinion, I kind of doubt it. The reason I say that is when I look at our model, even with our fair value where it is today, it’s still going to be based on pretty strong top-line growth. I mean, we’re looking for growth on the top line to average 17.6% from 2027 to 2030. Now, earnings are still negative, and they’re going to be negative for a couple of years. They’re not projected to turn positive until 2029.
The thing that kind of really causes me to pause on this one is this quote that I pulled out from our analyst write-up. “Roblox’s valuation is dependent on high growth and a continued ramping of user engagement and monetization.” So, that’s what the market is pricing in. That’s what we’re also pricing in right now just to get to a stock that’s fairly valued. If they’re not able to get back to that kind of growth that’s being priced into the marketplace today, yeah, I do think that there could be a lot of downside left to come. Whereas if they actually hit those growth expectations, the stock really shouldn’t be moving all that much to the upside.
Stock to Sell: HOOD
Hansen: OK. Thank you, Dave. Next up, number two is Robinhood HOOD, another name that’s come up before on this podcast. Walk us through some of the key metrics.
Sekera: Yeah, so Robinhood is a 1-star-rated stock. It trades almost double our fair value of $57 a share. It’s a company we rate with a Very High Uncertainty, although we do assign it a narrow economic moat. Just taking a look at the chart here, the stock peaked in October of 2025 and fell throughout early 2026. It’s rebounded; it’s recovered some of that loss. In this case, I think it still shows there is still some potential downside in the stock, but if you’re looking to maybe trying to get out of this one, at least you’re not selling it at the bottom. You’ve recaptured a little bit of that upside potential. This might be a good one to look at in your portfolio.
Hansen: Why does the stock warrant that sell recommendation?
Sekera: Well, I mean, first of all, just the valuation alone being almost double our long-term intrinsic valuation. I think that there’s a lot that you can use here to capture those capital gains in other portions of your portfolio. Valuation alone tells me that this is probably a sell. Now, personally, I’m also pretty leery of their business model overall. In my mind, I think this is a company that’s really gamified trading. Instead of really being about long-term and fundamental investing, it’s really about trying to scalp a couple of dollars here and there off of momentum trades as opposed to really trying to build long-term value in your portfolio.
Now, I’ve seen over the course of my career in a number of different bull markets, in the short term, that kind of activity oftentimes works for day traders. When the market is generally moving up and to the right, a lot of people are able to capture that gain in the short term. The problem is that trading like that slows if market momentum slows down. During downturns, I’ve just seen that wipe out a lot of day traders in the past, whether it was the runup to the global financial crisis, even going back to the internet bubble, even going back to the early ’90s when a lot of people were day trading biotech stocks. Again, very wary that if we do have much of a turndown in the marketplace, that can really impair the fundamentals of this company. Again, I just have my own personal bias. And yes, I always say you should put your personal bias aside when you’re looking at stocks. But again, they also make money on what’s called prediction markets. These are essentially event contracts on sporting events and other types of events. In my mind, that’s really just gambling. It’s not investing.
When you still look at the valuation based on our long-term intrinsic valuation, it still requires the company to transition from being what I’ve already talked about here to being more of a full-service brokerage, bringing in retirement accounts, bringing in other assets under management. Even to get to our $57 fair value, you still have to assume that they can double the revenue from $5 billion in 2026 up to $10 billion in 2030. Plus, you still have to believe that they can expand their operating margin to 47.9%. I’m sorry, from 47.9% to 54.5% in 2030. Right now, the stock’s trading at 52 times this year’s earnings estimate of $2.10. Based on those kinds of growth estimates—doubling revenue, operating margin expansion—that gets us to $5.32 in 2030. And even with all of that priced into our model, it’s still trading at twice our fair value. This is one, personally, I’d steer far, far away from. Take that for what it’s worth.
Stock to Sell: NFLX
Hansen: That’s a tall order for Robinhood to hit those 2030 numbers. OK. Number three, I’m sensing a theme here. Netflix NFLX has fallen pretty dramatically over the past year, and this is another stock that you have warned investors about in the past. What does Morningstar think today?
Sekera: Netflix is currently a 3-star-rated stock. Our fair value is at $80 a share. I think it’s trading at about a 12% discount from that right now. We rate the company with a High Uncertainty. We assigned a narrow economic moat, but just taking a look at the stock chart here, another one where it peaked in mid-2025. And in fact, at that point it was well into 1-star territory, meaning we thought it was significantly undervalued. It was an official sell recommendation on the Nov. 24, 2025 podcast. It’s down 36%. Again, this is one where it’s a 3-star-rated stock, but I still think it’s a good candidate to lock in some of those losses and use those losses to offset gains elsewhere.
Hansen: With shares falling, 4-star territory might not be too far away for Netflix. What should investors be thinking about if the stock starts trading much further below our fair value estimate?
Sekera: Again, this is one where part of the reason that I picked this one out is because I do think there are probably a lot of investors out there that probably do have embedded losses that they can take. The stock is at its lowest level that it’s been over the past two years. I think you can capture some tax losses here. Now, if it trades down further from here and there’s no downward shift in our own fair value, by locking in those capital losses, you do two things today. One, you can offset those gains elsewhere, so that helps you for taxes. And two, if it trades down enough that it goes into 4- or 5-star territory, our long-term investment thesis is holding up, fair values unchanged, that then also gives you that dry powder to be able to repurchase those shares lower if you want.
Now, I’m no tax advisor. I do kind of have to warn people there are what’s called wash-sale rules. There is a period after you make that sale that you have to wait before you can repurchase that stock in order to use it as a capital loss against gains elsewhere. Make sure that if this is a stock or any of these stocks, if you want to buy them back at some point in time, make sure you wait long enough before you do that.
Stock to Sell: CAVA
Hansen: Great. Next up is Cava CAVA. The stock is trading in 1-star territory. Walk us through the numbers.
Sekera: Well, not only 1 star, but it’s actually one of the most overvalued stocks under coverage. This is relatively new coverage that we picked up relatively recently. As you mentioned, 1-star-rated stock; trades at, I think, about $53. Our fair value is only $18. We rate the company with a Very High Uncertainty, and we do not assign it an economic moat.
Hansen: Cava is in the restaurant space. Talk us through that sector. Do other names have the same kind of downside potential? What does the landscape look like there?
Sekera: Yeah, we think so. It’s really not just Cava. I mean, a lot of these other restaurant chains have a lot of downward potential based on our fair values. Shake Shack SHAK, Dutch Bros BROS; two others that I would highlight out there. We’ve talked about some of these restaurants in the past. I can’t remember when it was, but a while ago we talked about Wingstop WING and why we thought that one was so overvalued. Part of the reason is that a lot of restaurants, when they’re in that growth stage, the market just way overextrapolates too much growth, both on a unit basis as well as the same-store sales growth. They trade up way too high during that stage, that they’re considered still a new concept. But then once the rate of growth starts to slow, that’s when you see these stocks plummet once the market starts dialing back those expectations. You don’t even need to see growth decline. It’s just once that rate of growth starts to slow is when these things sell off.
Now, this stock IPO’d in June of 2023 at $22 a share, skyrocketed by October 2024, was trading over $150 a share, and really it’s been in a downward trend ever since. So, taking a look at our $18 fair value, I mean, here’s what we model in today. We’re looking for unit growth to go from 439 units in 2025 to 516 this year, getting up to 850 by 2030. We are still looking for pretty significant unit growth. We’re looking for same-store sales to average 3.8% through 2030. Depending on your inflationary outlook, I mean that calls for both inflation pricing as well as volume growth at those units that are already established. As far as the operating margin goes, we’re looking for some expansion there. It was 4.7% last year. We’re looking for 4.8% this year, expanding to 5.1% in 2030. We’re looking for 60 cents in earnings this year, doubling to essentially $1.18 by 2030, yet the stock market is pricing in the stock today at 89 times 2026 earnings. That tells me the market is pricing in substantially faster growth over what we’re already pricing in just to get to our $18 fair value.
Stock to Sell: PGR
Hansen: OK. And your final stock this week to sell is Progressive PGR. Give us the key points.
Sekera: Sure. Progressive stock trades at a 10% premium, so that puts it right on the border between 2 stars and 3 stars. But either way, I still think it’s a good place maybe to look to capture some tax losses. If you have them there, we rate the company with a Medium Uncertainty and a narrow economic moat.
Hansen: Let’s talk about the insurance space a little while we’re on the topic of Progressive. Morningstar considers the insurance sector to be overvalued in general. Why is that, and why is Progressive in particular one for investors to sell?
Sekera: Yeah, and we thought that the insurance sector had been pretty overvalued for quite a while now. I think it was late 2024 on the podcast when we first started to note that insurance companies as a sector were all getting to be pretty overvalued. At this point, I think for most of these insurance companies, if you bought anytime in late 2024 through most of 2025, those shares probably have some embedded capital losses in there.
Now, what happened was in 2022, 2023, and even to 2024, insurance companies were in a position that they were able to make very significant increases to their premiums. As such, they were making what we thought were excess profits at the time. Our investment thesis had been that over time, those increases would return back toward more normalized levels from those high levels of premium increases that they were able to push through. And as such, earnings growth would then start to slow.
At this point, having talked to our equity analyst, Brett, he thinks we’re now in the early stages of that slowing right now. As the market starts to see that slowing growth, that should drive a negative sentiment across the insurance space. That’s why I think a lot of these insurance stocks have further to fall before they get to the point that the market’s going to see them as being undervalued or cheap.
Hansen: Well, Dave, thank you so much. You’ve given us a lot to chew on and a lot to look out for this week. I could never fill Susan’s shoes, but it’s an honor to be here with you.
Hansen: Looking forward to it. Thank you to our viewers and listeners. If you’d like more information about any of the stocks that Dave talked about today, you can visit morningstar.com for more details. We hope you’ll join us next Monday for The Morning Filter podcast. That’s at 9 a.m. Eastern, 8 a.m. Central. And in the meantime, please like this episode and subscribe. Have a great week, everybody.
Editor’s Note: In the video for this week's episode, the fair value estimate for Roblox stock is incorrectly shown as $25. The correct fair value estimate is $45.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.