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Ruth Saldanha: Can Uber lift your portfolio? With all these layoffs, how can you disaster-proof your financial situation? What should investors watch after the midterm election? This is Investing Insights. Welcome to the new Investing Insights. I'm your host, Ruth Saldanha. Let's get started with a look at your Morningstar headlines.

Can Uber Lift Your Portfolio?

Uber delivered impressive third-quarter results led by significant growth in bookings, new hires and delivery...which generated free cash flow. It also had positive adjusted EBITDA—a widely used measure of corporate profitability. Year over year ridership was up 26%, the number of drivers jumped 38% while Uber's delivery service grew 7%. The number of users, total requests and frequency were also up significantly from last year. The improvements led management to forecast higher demand in the fourth quarter...despite significant macro uncertainties in the U.S. and globally Improvements on the demand and supply sides of the platform are an indication of Uber’s resilience. Uber did face some foreign currency headwinds which partially offset the overall strong demand. We're maintaining our $73 estimate of what we think the stock is worth and consider shares as attractive.

Disaster-Proofing Your Portfolio

Involuntarily losing a job can be one of the most traumatic and painful economic shocks a person can face. It's a hit that can take a toll on one's emotional, social, professional, and financial life. Morningstar director of financial psychology Sarah Newcomb says there are strategies and critical resources for coping. And also a lot of dos and don’ts when it comes to decision-making during and after a layoff. Newcomb there are two main coping strategies people employ when dealing with a negative shock. One can focus on the problem and work to remove or fix the source of the discomfort. Or focus on emotion to work to avoid, transform, or dull emotional pain. Newcomb says losing a job can cause intense negative emotions like anger, confusion, grief or sadness...and that it's important to reframe the situation positively. Then, one’s focus can shift to how to land the next job. For an in-depth look at more ways of helping to disaster-proof your financial situation check out the article...'How to Cope With Financial Shocks' at Morningstar.com.

Starbucks Is Resilient in Q4

Starbucks brewed up surprising fourth quarter results that showed resilience attesting to the strength of its brand. Led by an uptick in U.S. traffic and a surge in loyalty program membership the company easily beat Morningstar's estimate. The numbers have Starbucks thinking positively for 2023 calling for a 10%-12% uptick in sales and a 15%-20% jump in earnings per share. While such figures strike us as plausible especially given new initiatives we remain less constructive regarding the firm's domestic comparable store sales outlook. And we don't think incremental growth from cold beverages, drink modifiers, and new drink launches will achieve those goals without big price increases. In our view, the degree of pricing power restaurants have enjoyed the last two years may not be repeatable in an era of rising borrowing costs, inflationary pressure, and declining asset valuations. We're sticking with our long-term forecasts considering fiscal fourth-quarter results and expect to slightly raise our $104 estimate of what we think the stock is worth.

COP27

The 2022 United Nations Climate Change Conference, more commonly referred to as the Conference of Parties, or COP27, continues in Egypt this week. So, what does it mean and how relevant is this for investors? Leslie Norton, editorial director for sustainability research distribution is here today to talk about this. Leslie, thank you so much for being here today.

Leslie Norton:

Thanks for having me, Ruth.

Saldanha:

Let's start with the basics. Why does the COP27 meeting even matter?

Norton:

Well, the COPs matter because they're the way that nations around the world commit to curbing global warming. Last year's COP26 marked 15 years since the signing of the Paris Agreement, and last year was important because it culminated in the Glasgow Climate Pact, in which nations kept the goal of capping global warming at 1.5 degrees Celsius. Why that number? Because if we could accomplish that, then we avoid the most catastrophic effects of global warming. These include floods, droughts, wildfires, hurricanes.

And COP27, to get back to your question, is important because it's a so-called implementation COP. Lots of countries and organizations have pledged to slash greenhouse gas emissions, which cause global warming, to net zero by 2050. That means they plan to take as much carbon out of the atmosphere as they're putting in. One hundred thirty-six countries have pledged to reach net zero, and countries responsible for nearly half of those global emissions are aiming for 2050. So, at COP27, nations are going to be urged to release details of how they're planning to reduce those emissions. And rich countries will also be leaned on to help poor countries with their climate transition.

Saldanha:

What has been achieved since COP26 last year?

Norton:

We have seen more companies and more entities signing on to net-zero pledges. At COP26, countries agreed to deliver stronger commitments this year. However, I think I read recently that only 24 out of 193 companies have submitted their most ambitious targets to the U.N. so far. So, that's going to be an issue. I like to think that the arc of climate change is a lot like parenting. The days are long, but the years are short. So 2030—an interim target is not that far away, and we'll discover that 2050 isn't either.

Saldanha:

Are the pledges made by all of these countries binding? In other words, who holds them accountable?

Norton:

That's a great question. In fact, they're not binding; they're voluntary. So who holds them accountable? Voters, the press, other institutions, companies, shareholders of companies, that all have to be part of the carbon transition. We're all in this, whether we like it or not.

Saldanha:

What next from here on out?

Norton:

Well, I think you'll see an emphasis on themes like biodiversity loss. On Dec. 7, the U.N. will host a biodiversity conference in Montreal, and biodiversity is critical because economic activity depends so heavily on nature. The world subsists on wheat, corn, and rice. So, that's an enormous dependency. You'll also see an emphasis on the water crisis and on deforestation.

Saldanha:

Great. Thank you so much for joining us today with your perspectives, Leslie.

Norton:

You're welcome.

Saldanha:

The big news this week was the Mid-Term election. Irrespective of who you supported in this round, the main question for investors is what happens next. To answer this, Morningstar Inc.’s director of content Susan Dziubinski spoke to Morningstar Research Services’ Chief U.S. market strategist Dave Sekera. Here’s what they had to say.

What a Divided or United Government Means for Investors

Susan Dziubinski:

Hi, I'm Susan Dziubinski with Morningstar. It's the morning after midterm elections in the U.S., and at this time, it's unclear who will control the U.S. House and Senate.

Here to discuss what a divided or a united government means for investors is Dave Sekera. Dave is Morningstar's chief U.S. market strategist.

Dave, a couple weeks before the midterm elections, you wrote a column that noted that while the election outcome will certainly have ramifications for the next congressional agenda, it might not be something that long-term investors should get too worked up about. Talk about that.

Dave Sekera:

When I think about the market, and think about it from a long-term perspective, there certainly could be some changes for individual sectors, depending on what the agenda is and what the spending priorities are in any new spending programs. But the impact on those individual sectors, while they may be large for that individual sector, when I think about it from a broad market standpoint, isn't going to affect necessarily the broad market valuation.

For long-term investors, what I'm really more concerned about is where is the market valuation today? And based on that valuation, what is that baking in in the future as far as future expectations for the economy, the inflation outlook, and so forth? And so the midterms, again, I don't think that they're necessarily going to change, or at least not to a large degree, our outlook for the economy and for inflation. And when I look at the market today based on our valuations, we think the market is probably about 15% to 20% undervalued. So, either way, however the midterms turn out, I'm pretty comfortable for long-term investors putting new money to work today.

Dziubinski:

Let's look at the two different scenarios, Dave. If Republicans do gain control of either the House or the Senate we're looking at a divided government. What does that mean for government spending and for legislation?

Sekera:

Again, that's really going to bring us back to a gridlock situation. And in that case, we just expect really a status quo of the current spending programs that are out there today. And so I really wouldn't be looking for any new large spending programs other than maybe defense. That would be certainly one area where I could see both parties coming together and seeing some additional spending there. But for the most part, I think we'd just be looking at the next two years as a continuation of the ongoing programs today.

Dziubinski:

What then might a divided government mean for Morningstar's outlook on the market?

Sekera:

Again, it gets back to thinking about what is the market baking in today. And under that divided government without having any new major changes in legislation or spending programs, our base-case scenario is still that the market is pretty undervalued today by about 15% to 20%.

Dziubinski:

Then let's pivot over to the opposite scenario, which is where the Democrats retain control of Congress. What might that mean for government spending and legislation?

Sekera:

You have to remember a lot of what the initial Democratic priorities were. A lot of that has already gotten passed over the past two years. So, thinking about things like the Inflation Reduction Act and the amount of additional spending that we've seen there in order to really accelerate the United States' transition to clean and renewable energy has already occurred.

I think a lot of the impact for the stock market and those specific sectors has probably already occurred. When we're thinking about what new additional spending programs then might be over the next two years under a united government, I think a lot of that spending would actually go more for social programs as opposed to programs that would impact corporate earnings. And so that's why we don't necessarily think that a united government really will change our outlook as far as the economy and for inflation and thus stocks.

Dziubinski:

Might there be changes then to Morningstar's outlook for the markets if the Democratic Party retains control?

Sekera:

For the overall market, I don't think so. And again, it's always barring what ends up getting passed through could be significantly different and more meaningful than maybe what we're contemplating, which of course we would then have to bake into our expectations going forward. But for now, I'm thinking that most of those changes and those spending priorities really would be limited more to individual sectors, and we could see impacts in those sectors, but it's not something that we think changes that overall economic and inflation outlook.

Dziubinski:

Then Dave, once the results are final, do you think we might see a little bit less volatility in the stock market or does that depend on the results?

Sekera:

I think irrespective of the results, we still expect to see a lot more volatility in the markets going forward. And that gets back to those headwinds we identified at the beginning of the year that we thought the markets were going to have to contend with this year.

Again, coming into the year, we thought the markets were overvalued. We noted that there were really four different things that they were going to have to contend with. One, the expectation that the economy was going to slow down, which we'd certainly seen; the Fed tightening monetary policy, which they've actually even been more hawkish, I think, than what we necessarily expected at the beginning of the year; inflation running hot this year, we still have yet to see inflation really meaningfully turn a corner and start coming back down; and our expectation that interest rates were going to increase.

All four of those headwinds are still playing out and will play out probably at least for the next several months, if not the next quarter or two. So, as those headwinds still continue to buffet the market back and forth, I do expect that we're going to see much volatility coming forward.

Now having said that, we do think that the markets are undervalued enough that if you're a long-term investor, and you've got the intestinal fortitude to be able to weather these headwinds, I do think that when we come out of this later next year, you're going to be pretty happy that you were able to stick through that because, again, we do think markets, generally speaking, are very undervalued.

Dziubinski:

Well, Dave, thank you for your long-term perspective amid now political uncertainty, let alone market uncertainty. We appreciate your time.

Sekera:

All right. Thank you, Susan.

Dziubinski:

I'm Susan Dziubinski with Morningstar. Thanks for tuning in.

Saldanha:

Thank you Susan and Dave! That’s all for this week’s episode. Thanks to podcast producer Jake Van-Kerr-Sen who puts this show together. I’m Ruth Saldanha, an editorial manager at Morningstar. Thank you for watching Investing Insights.

Read about topics from this episode.

What Could the Midterm Election Results Mean for the Stock Market? How to Cope With Financial Shocks Strong Q3 Indicates Uber May Be Resistant to Macro Uncertainties Starbucks Q4 Earnings Show Strong Traffic That Bucks Industry Trends Special Report: For Investors, COP27 Summit Brings New Opportunities 10 Reasons Why ESG Won't Be Stopped