The Morning Filter — Weekly Investor Infographic
Big Picture
Trade & Tariffs
Markets are shrugging at U.S.–China tariff talk. Base case: negotiations & leverage-seeking. Long-term investors: avoid headline trading; adjust only once policy is finalized.
CPI Snapshot (September)
Fed Watch
Market-implied odds favor a rate cut this month and another in December. Range drifts toward 3.75–4.00% by year-end. Steeper curve = wider NIMs for banks.
Earnings Radar
Tip: If you dislike event risk, wait for prints; modest pops likely still below fair value for DHR/TMO.
Sector Notes
🏦 Banks
- Mega-banks: fundamentals strong—but largely priced in.
- Regional smoke from idiosyncratic credits/fraud; confidence is oxygen.
- USB: ~15% discount, ~4.4% yield; “orphan” scale, steady NIM tailwind.
🖥️ Semis & AI
- TSM: beat/raise fatigue after big run — now ~fair value.
- ASML: cyclical & volatile; accumulate on pullbacks, not breakouts.
- CRM: under-owned AI monetizer; revenue path to 2030 supports upside.
🛡️ Insurance
- Pricing power normalizing after two strong years.
- PGR/TRV still dear; MMC back to 3‑star territory.
Dave’s Screened Ideas (Moat + Discount + Manageable Uncertainty)
Microsoft (MSFT)
- Wide moat; Azure + Copilot + GitHub = multi‑toll AI monetization.
- Capex wave → cloud acceleration; beta ~0.9 for relative defensiveness.
- ~14% Discount • 4‑Stars
Deere (DE)
- Coming off pandemic pull‑forward slump; normalization from 2026.
- P/E looks high on trough EPS; ~16× on 2026 EPS lens.
- Cyclical Normalize
Huntington Ingalls (HII)
- Sole carrier builder; 1 of 2 nuclear sub yards; backlog visibility.
- Legacy inflation‑era contracts rolling off → margin repair (to ~8.6% by 2029 modeled).
- ~14% Discount • Wide Moat
Medtronic (MDT)
- Large‑cap devices across cardiac/diabetes/neuro; demographic tailwinds.
- ~5% rev CAGR, ~7% EPS CAGR; ~3% dividend.
- ~14% Discount
Hershey (HSY)
- Cocoa shock is cyclical; supply response underway (3–4 yrs planting).
- Margins rebuild as inputs ease; dividend ~2.9%.
- ~11% Discount • Mean Reversion
Salesforce (CRM)
- 2030 rev target $60B (10% CAGR); Agentforce 360 drives attach.
- One of the few AI software names still below FV.
- ~25% Discount • 4‑Stars
Your Weekly Plan
- Macro first: CPI + Fed tone; base case remains disinflation with growth.
- Earnings discipline: Own quality-at-discount (CRM/DHR/TMO); size down speculation (TSLA/NFLX).
- Financials: Mega-banks priced in; consider USB for value + yield.
- AI balance: Don’t chase hardware melt-ups; favor durable software toll roads.
- Defensive ballast: HII (backlog) + MDT (demographics) to smooth equity beta.
- Consumer reset: HSY for input-cost mean reversion.
Risks to Watch
- Policy: Tariffs can flip from noise to numbers.
- Macro drift: Disinflation stalls or growth slows faster than modeled.
- Earnings: Concentration risk around single‑name prints.
- Behavioral: Headline trading, thesis drift, and sizing errors.
This infographic is educational, not investment advice. Do your own research.
Every Monday before the bell, Morningstar’s chief U.S. market strategist Dave Sekera and I sit down to sort the signal from the noise: the macro setup, what data actually matters, the earnings landmines—and yes—a few stock ideas with valuation discipline. Here’s this week’s rundown, distilled and expanded into a single investing brief you can read in five minutes and revisit all week.
This Week’s Big Picture
Tariffs, Trade, and the Temptation to Trade Headlines
There’s been plenty of saber-rattling around U.S.–China tariffs. Markets, however, have been oddly nonchalant, oscillating but not breaking. Dave’s read: this is still posturing—each side probing for leverage. The right investor stance? Wait and see. Until there’s a definitive agreement, rejiggering your investment theses risks whipsawing yourself: you’d likely sell after down days and chase after rebounds. Long-term investors should look through the noise, keep core assumptions intact, and be ready to adjust after the policy is actually inked.
CPI and the Macro Dashboard
We finally get the delayed September CPI (thanks, government shutdown). The consensus:
- Headline CPI (m/m): +0.4% (flat vs. prior month)
- Headline CPI (y/y): ~3.1% (a tick up)
- Core CPI (m/m): +0.3% (unchanged)
- Core CPI (y/y): ~3.1% (unchanged)
Bottom line: no regime change. Sticky, but trending in the right direction is the vibe.
The Fed: Odds-On Cuts
Markets (via the CME FedWatch tool) imply very high—effectively certain—odds of a cut at this month’s meeting and another in December, putting the policy rate near 3.75%–4.00% into year-end. Cuts this late in the cycle are a double-edged sword: they support valuations via lower discount rates and help banks’ funding costs, but they also admit growth is slowing. The key is speed versus slope—short rates falling faster than long rates steepen the curve, a positive for net interest margins.
Earnings Radar: What We’re Listening For
Tesla (TSLA): Robo-Taxi and Low-Cost Models
The stock has ripped off the April lows, with sentiment glued to the robo-taxi narrative and the ramp for sub-$40K Model 3/Y trims.
- Watch: Whether management sticks to next-year launch language for robo-taxi; clarity on production targets for lower-priced models.
- Valuation stance: Morningstar still sees the market overestimating near-term earnings velocity; shares trade at a steep premium to fair value. Not a short call—just a temperance call: don’t confuse optionality with current cash flows.
Netflix (NFLX): Growth Already Harvested?
All of 2025’s YTD gains arrived early in the year; shares have since chopped sideways. The password-sharing crackdown and ad-supported tier drove the last leg; incremental catalysts get tougher from here.
- Watch: Sub adds versus ARPU mix; ad-tier traction beyond low-hanging fruit.
- Valuation stance: A rich multiple on 2025 earnings means disappointment risk is asymmetric into print.
Intel (INTC): Collaboration ≠ Foundry Commit
Intel got a bid after a collaboration with Nvidia on custom PC/data-center products. Morningstar raised fair value modestly—integration of RTX GPUs may slow PC CPU share losses to AMD. But:
- Watch: Any hint that Nvidia will shift GPU foundry volume from TSMC to Intel (that’s the true catalyst; so far, no commitment).
- Capex reality: Intel still must spend heavily to catch up technologically.
- Valuation stance: Shares at a premium—pricing in more than fundamentals have proved.
Defense: Lockheed Martin (LMT) and Northrop Grumman (NOC)
Despite geopolitical headlines moderating in places, multi-year platform backlogs (F-35s, subs, missiles) are the real earnings driver—less sensitive to short-term ceasefires.
- Watch: F-35 order cadence (rumors of slower deliveries vs. outright reductions).
- Capital allocation: Political noise on buybacks vs. R&D is unlikely to change intrinsic value much at today’s valuations.
- Positioning: Both moved from previous 4-star “buys” to 3-star holds after rallies. Owners can stay patient; new money can watch pullbacks.
Life Sciences Tools: Danaher (DHR) & Thermo Fisher (TMO)
Budget pressures in academia/biopharma weighed on tools/consumables in the past two years. Morningstar thinks the worst is behind.
- DHR: Solid 2025 outlook; margin execution last quarter; EPS guidance nudged higher by ~$0.10.
- TMO: “Decent” results and higher full-year guidance last print.
- Valuation stance: Both still marked undervalued (4-stars), but no urgent catalyst before prints. If you hate event risk, you can wait for the numbers—even a modest post-earnings pop would still leave room to fair value.
Sector Note: Banks—When Everything Goes Right
Large banks are enjoying a sweet spot:
- Funding costs falling as the Fed eases,
- Long rates drifting lower, boosting securities book values,
- Steepening curve aids margins,
- Trading/underwriting healthy, IB perking up,
- Credit still benign (no recession base case).
The catch: it’s priced in.
- JPM: 2-stars, ~20% premium
- WFC: 2-stars, ~16% premium
- BAC: 2-stars, ~11% premium
- C: 2-stars, ~18% premium
Translation: great fundamentals, thin margin of safety.
Regional Banks: Smoke Around Risky Credits
We’ve seen episodic selloffs tied to idiosyncratic loan issues and fraud allegations (think $50–100M charge-offs at specific lenders, lawsuits against borrowers). One lesson from banking: confidence is the oxygen of deposits and funding. Three names sliding in unison would be a broader red flag; Friday’s bounces suggest confidence remains, but it’s a watch item.
The Sleeper: U.S. Bancorp (USB)
Morningstar’s long-time favorite among regionals posted solid Q3: revenue growth, expense control, NIM +9 bps, on-track medium-term ROATCE/efficiency targets.
- Valuation: ~15% discount (4-stars) with ~4.4% dividend.
- Why the lag? USB is an “orphan”—too big for small-regional baskets, too small for mega-cap flows.
- Catalyst problem: Nothing obvious; sometimes valuation plus time is the catalyst.
Semis & AI: TSMC, ASML, and a Software Outlier
TSMC (TSM): Good Results, Good Guidance—And Good Enough
TSMC raised revenue growth to mid-30% from low-30%. Shares slipped—likely a “beat wasn’t big enough” reaction after a torrid run (+30% since September; +50% YTD).
- Valuation stance: Now about fair value (3-stars); long-term holders can sit tight, bargain hunters can wait.
ASML: Volatility Is a Feature, Not a Bug
Lithography king ASML has swung between 4-star bargains and 2-star trims the past two years. Latest print: fine; Morningstar raised fair value earlier this year; China weakness expected into 2026 but offset elsewhere.
- Valuation stance: Back to 3-stars, trading ~29–34x outer-year earnings—full for now. It’s one to accumulate on pullbacks, not chase.
Salesforce (CRM): The Under-Owned AI Beneficiary
An Investor Day pop faded intraday (someone big sold into strength), but guidance was the headline: $60B revenue target by 2030 (implies ~10% CAGR), anchored by Agentforce 360 AI. Morningstar’s base case is a tad lower (~$56.5B), but even its model suggests double-digit EPS CAGR and undervaluation today.
- Valuation stance: ~25% discount, 4-stars—one of the few AI-levered software names still below fair value. Sometimes the best AI plays aren’t the racks of GPUs; they’re the workflow owners that monetize AI features across a massive installed base.
Insurance Check-In: Pricing Power Normalizes
Progressive (PGR) and Travelers (TRV) cooled after prints; Marsh & McLennan (MMC) has fallen into 3-star range. The mini-cycle here was straightforward: two years of aggressive premium hikes pushed margins higher; now, competition and normalizing loss trends temper that tailwind. Great businesses can still be mediocre stocks when valuations run hot.
Question of the Week: “Is There a Stock That’s Defensive, Upside-Capable, and Undervalued?”
Dave calls this unicorn hunting—everyone wants resilience + upside + discount. Still, he screened for:
- 4- and 5-star ratings (margin of safety),
- Wide/narrow moats,
- Low/medium uncertainty,
- A bias to larger caps (with select mid-cap exceptions).
Here are the five he highlighted—and why:
1) Microsoft (MSFT): Wide Moat, Medium Uncertainty, Discount to Fair Value
Yes, we talk about it a lot—because it remains the last wide-moat megacap still at a discount in Morningstar’s framework.
Why now:
- AI monetization flows through Azure, Microsoft 365 Copilot, and GitHub—multiple toll booths.
- Capex ramp in H1 sets the table for cloud acceleration in H2; we could see that in the next couple of quarters.
- Defensiveness: Beta ~0.9; tends to fall less in risk-off.
Stance: ~14% discount, 4-stars. It’s rare to get quality, growth, and resilience in one package without paying up.
2) Deere (DE): Cyclical Normalization Story
A pandemic-era pull-forward (high crop prices + infrastructure stimulus) reversed into a normalization slump:
- Revenue fell 19% in 2024; projected -13% this year.
- Thesis: Normalization should begin in 2026, with ~8% top-line CAGR thereafter.
- Valuation lens: Price looks dear on this year’s earnings (26x), but on 2026 EPS it’s ~16x, a better lens for a cyclical coming off a trough.
Stance: A forward expectations play. You buy cyclicals when the P/E looks highest—that’s usually the trough.
3) Huntington Ingalls Industries (HII): Wide-Moat Shipyard With Margin Recovery
The sole provider of U.S. nuclear aircraft carriers (and one of two submarine builders) got whacked last year as inflation-era contracts lacked pass-through. Investment case:
- Those money-losing legacy contracts are rolling off; renegotiated batches should restore profitability.
- Morningstar models shipbuilding margins rising from ~5.2% (2024) to ~6.3% (2025) and ~8.6% by 2029.
- Multiple compresses from ~19x this year to ~16x next year on recovery.
Stance: 4-stars, ~14% discount, 1.9% yield—and a backlog measured in years, not quarters.
4) Medtronic (MDT): Large-Cap Med-Tech With Rotation Tailwind
A global device leader across cardiac rhythm, structural heart, diabetes, neuro, and more.
- Thesis: Beneficiary of aging demographics, and a value rotation back to healthcare as frothy growth names cool.
- Model: ~5% revenue CAGR, modest margin lift, ~7% EPS CAGR over 5 years.
- Valuation: ~17x this year’s EPS, ~16x next year; 3% dividend.
Stance: Still undervalued (4-stars, ~14% discount) despite a +22% YTD move—room left as sentiment mends.
5) Hershey (HSY): The Cocoa Conundrum Creates Opportunity
Cocoa shocks (droughts, disease in West Africa) quadrupled prices, crushing confectioner margins despite industry price hikes.
- Mechanics: Cocoa is 20–50% of COGS depending on product. High input spikes take time to push through.
- Forward look: High prices beget supply and demand elasticity; new supply takes 3–4 years to bear fruit—now approaching. Cocoa already easing from peaks.
- Valuation path: 2025 EPS is depressed (mid-$5s–$6), creating an ugly 31x optical P/E. But Morningstar’s path to ~$9.57 by 2027 implies <19x—below its 10-yr average mid-20s multiple.
Stance: 4-stars, ~11% discount, ~2.9% yield—a slow-burn mean-reversion with income.
A Simple Weekly Plan
1) Macro first.
- Watch the CPI print and Fed language, but avoid knee-jerk shifts. The base case is disinflation with growth, not a new inflation scare.
2) Earnings with a framework.
- Own quality at a discount into prints (CRM, DHR, TMO).
- Tread carefully where the story > earnings (TSLA, NFLX). If you must trade them, do it around position sizing and risk controls, not conviction in your crystal ball.
3) Financials discipline.
- Mega-caps look fully priced; preferred relative value sits with USB among regionals—accepting a slower catalyst path.
4) AI exposure balance.
- Hardware darlings have run. Consider software toll-roads where valuation still works (CRM), and watchlists for semis (ASML, TSM) on weakness.
5) Defense & healthcare as ballast.
- HII for margin repair in a national-priority niche; MDT for steady compounding and yield with reasonable entry.
6) Consumer defensives on reset.
- HSY is a textbook input-shock reversal trade: when the commodity cools, margins follow.
Starter Watchlist (With Roles in a Portfolio)
- Core Quality Growth: MSFT (AI monetization + resilience)
- Cyclical Normalizer: DE (multi-year EPS lens, not this year’s)
- Structural Backlog/Defense: HII (wide moat, recovering margins)
- Defensive Compounder (Healthcare): MDT (demographics + valuation)
- Defensive Consumer with Mean-Reversion: HSY (margin rebuild as cocoa eases)
- Undervalued AI Software: CRM (revenue/EPS path > multiple)
- Regional Bank Value: USB (NIM/TCE progress, yield)
- Hold/Watch for Pullbacks: LMT, NOC, DHR, TMO, TSM, ASML
- High-Expectation Names—Trade Light or Not at All: TSLA, NFLX, INTC (rich or event-dependent; avoid thesis drift)
Risk Notes (Read This Twice)
- Policy path risk: Tariffs can escalate from noise to numbers; rate-cut probabilities are not guarantees.
- Macro drift: Disinflation can stall; growth can cool faster. Both change fair value math.
- Earnings concentration: Single-name event risk is real—diversify across factors (quality, value, size) and sectors.
- Position sizing: Your edge is not better forecasts—it’s better process: right sizes, right horizons, pre-defined exits.
The Bottom Line
This week looks like a classic “trust but verify” setup. Headline risk on trade, a CPI that likely doesn’t break trend, and earnings that reward execution over narrative. The market is still paying a premium for stories and hardware glamour—and underpaying for cash-flow compounding in less-noisy corners.
If you build your plan around quality at a discount (MSFT, CRM), mean-reversion (HSY), structural backlogs (HII), normalized earnings lenses for cyclicals (DE), and a select value in financials (USB), you won’t have to win the headline lottery to reach your goals. You’ll just need patience, sizing, and the discipline to let fundamentals catch up.
We’ll be back next Monday to preview the mega-cap gauntlet—Microsoft, Alphabet, Meta, Apple—and what their guides imply for the next leg of the AI cycle. Until then, keep your process boring and your portfolio resilient.
Disclaimer: This brief is for informational and educational purposes only and does not constitute investment advice or an offer to buy or sell any security. Always consider your objectives, risk tolerance, and time horizon, and do your own research before investing.