In the latest episode of The Morning Filter podcast, hosts Dave Sekera, Chief US Market Strategist at Morningstar, and Susan Dziubinski delved into the current climate of the stock market, focusing on the likelihood of a Federal Reserve interest rate cut and upcoming earnings reports from major companies like Costco (COST), Campbell’s (CPB), and Adobe (ADBE).
Recently, the market has shown a growing expectation for a Federal Reserve cut, with current probabilities indicating an impressive 88% chance for the upcoming meeting. However, looking ahead to January, the consensus shifts, revealing a less optimistic 25% chance for additional cuts in the near future. Sekera pointed out that while various forecasts from Morningstar’s economists suggest several cuts might occur throughout next year, the anticipation for immediate reductions is tempered.
The discussion then transitioned to earnings reports, spotlighting Costco, Campbell’s, and Adobe. Costco remains a high-quality company, but is notably trading at a significant premium—40% above Morningstar’s estimated fair value. Sekera expressed that any misstep in membership growth or revenue could lead to a swift market correction for Costco.
Conversely, Campbell’s stock appears undervalued, with a staggering 50% discount from its fair value estimate. The discussion highlighted the evolution of Campbell’s product lineup beyond just soups, now encompassing a wide array of sauces and snacks. Sekera views it as a strong buy despite no imminent catalysts expected to push the stock higher.
Adobe’s earnings report is another pivotal moment consumers and investors should watch closely. Morningstar analysts argue that Adobe has potential for growth by incorporating artificial intelligence into its products, countering market sentiment that fears potential erosion of value.
The conversation also touched on the performance of cybersecurity companies like Zscaler (ZS), CrowdStrike (CRWD), and Okta (OKTA), which have shown strong results and increased guidance, maintaining a positive long-term outlook in this high-demand sector.
Regarding Marvell Technology (MRVL) and Salesforce (CRM), both companies have shown potential for strong growth, particularly in the AI space. Marvell has fared well, leading to a 33% raise in its fair value estimate after strong earnings. Salesforce continues to garner interest as it integrates AI into its offerings, reflecting a broader trend of uplifting its business model amidst market skepticism.
As the dialogue progressed to broader market valuations, Sekera provided insights into the current landscape: stocks appear to be trading slightly below intrinsic value, with small-cap stocks becoming increasingly attractive as the Federal Reserve might ease monetary policies. He suggested strategic adjustments within portfolios that prioritize high-quality, wide-moat stocks.
Sekera concluded with a list of current stock picks, emphasizing companies like Amazon (AMZN), Palo Alto Networks (PANW), and Clorox (CLX)—all trading at discounts with strong fundamentals. This week’s discussion encouraged investors to consider high-quality investments that promise growth despite broader market uncertainties.
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