Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm here today with Elizabeth Collins, she's our director of equity research for North America. I want to look at the impact of a Trump presidency on our fair value estimates.
Elizabeth, thanks so much for joining me.
Elizabeth Collins: Thanks, Jeremy.
Glaser: Let's talk a little bit about if there's any plans for kind of wholesale revisions to fair values, wholesale rethinking of our equity research due to the Trump administration.
Collins: Very generally, we don't expect sweeping changes to our fair value estimates as a result of last night's outcome. That's because we have a long-term approach to investing, and we're fundamentals-driven and we believe in intrinsic value. We use discounted cash flow models to peg the fair value estimate of every single company that we cover, and what that means is that the cash flows that the firms can generate over the next five, 10, 15, 20 years really matter for what we think the firm is worth. Because of that, what happens in the next few days, in the next few years even, matters not so much to company fundamentals as the long-term course of history and industry supply and demand fundamentals. So you might see a few tweaks here and there to our fair value estimate to the extent that some companies will get their fundamentals impacted, but by and large, we won't see many material changes to our fair value estimates.
Glaser: One area that could see some fundamental change is healthcare if there are major changes the Affordable Care Act, to Obamacare. What are expectations in healthcare?
Collins: Well, actually I don't think our expectations change all that much in healthcare, because even yesterday, if Clinton was the candidate that had the most rhetoric about being against high drug prices, there were limits to what she could have done if she had gotten into power because of Congress and just the laws that would have to be implemented in order to really push back on the drug value chain. But given the fact that there is now a Trump outcome, any push back in drugmaker and distributor profitability becomes even less likely. And even outside of the government realm there a lot of private market forces in play that are the same no matter who is in office.
Glaser: Are there other sectors that you think could be more impacted than others?
Collins: Yes. Again, I think that for the most part sectors have more important fundamental factors in play. Global supply and demand for commodities, consumer demand, things of that nature, but you will see updates from us on where we stand in important sectors that are, at least in perception terms, up for grabs today, and that includes the power sector, defense, things of that nature.
Glaser: Sounds like overall we're expecting a pretty modest change to our thinking. What would make that a larger difference or what would you have to see it in terms of rhetoric, in terms action that would really make us rethink some of our assumptions?
Collins: Sure. I think what you're hearing me say is that there is not much I can think of that would make us materially change our current fair value estimates in a sweeping way. Even on trade, where Trump has been more isolationist and anti-trade than the status quo, we have been writing that trade measures really don't work for domestic producers because, say, for example, commodities are fungible. And if we impose tariffs on one country, we'll get cheap imports from another. So protectionist measures that isolate certain sectors, like the steel sector, don't necessarily work out in the long-run and what ends up mattering most is the global supply and demand balance for those commodities.
Glaser: Elizabeth, thank you for the update this morning. We're looking for to other updates throughout the day.
Collins: Thank you.
Glaser: From Morningstar, I'm Jeremy Glaser. Thanks for watching.