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Morgan Stanley says to load up on these 10 stocks featured on the firm’s ‘buy list,’ which has dominated the broader market this year | Markets Insider

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The Apollo 8 blastoff from Cape Kennedy, Florida, on December 21, 1968.

  • Morgan Stanley investment chief and US strategist Michael Wilson called the recent market downturn and has been telling investors to buy on dips.
  • Wilson notes that the 10 stocks on the firm’s “Fresh Money Buy List” have delivered much stronger performance than the broader market.
  • He says rising interest rate expectations might create more instability, but earnings will eventually get the bull market going again. 
  • Visit Business Insider’s homepage for more stories.

Michael Wilson of Morgan Stanley has to be feeling pretty good about the sell-off in stocks that he forecast in mid-October.

In a note to clients just before the post-election rally, the firm’s investment chief and chief US equity strategist said that correction was fully justified and mostly complete. He encouraged traders to buy dips during that period in the belief stocks would recover and move higher.

That doesn’t mean it’s smooth sailing from here, though.

“We still think the next month is likely to remain volatile and uncertain,” he said in the Nov. 2 note. “While we are comfortable telling clients to add risk into further weakness this week …. we also believe it could take time for the S&P 500 to add to its bull trend in earnest.”

There are clear event-related reasons for that, including the continuing growth in COVID-19 cases and sustained uncertainty around the elections and the makeup of the federal government. But Wilson also thinks there will be turbulence as investors reset their expectations about the path of interest rates.

“Expect more volatility as long-end rates adjust to higher growth/inflation,” Wilson wrote. “We think 10-year yields are about to rise significantly and a 100 bps move cannot be ruled out. In fact, we think it should be expected.”

That’s especially significant for high-growth stocks because of their high multiples, and for defensive stocks because their earnings are most negatively correlated with higher rates.

Still, Wilson says that improving earnings are going to support a move higher as that adjustment is made.

Against that backdrop, Wilson points to his “Fresh Money Buy List,” a portfolio of 10 “Overweight”-rated stocks with high levels of conviction. The median performance of the stocks since they were placed on the list is 28.9% as of November, which translates to a 6.3% return above that of the S&P 500 index.

The stocks are arranged from lowest to highest based on the upside implied to Morgan Stanley’s price targets. Percentages were calculated based on Thursday’s closing prices.

Read more:

10. T-Mobile US

T-Mobile


Ticker: TMUS

Sector: Communication services

Market cap: $144.1 billion

Price target: $124

Upside to target: 5.7%

Source: Morgan Stanley

9. Walt Disney

Disney


Ticker: DIS

Sector: Communication services

Market cap: $226.9 billion

Price target: $135

Upside to target: 6.3%

Source: Morgan Stanley

8. Linde

Linde


Ticker: LIN

Sector: Materials

Market cap: $124.0 billion

Price target: $275

Upside to target: 10.1%

Source: Morgan Stanley

7. Mastercard

Mastercard


Ticker: MA

Sector: Information technology

Market cap: $307.4 billion

Price target: $353

Upside to target: 11.5%

Source: Morgan Stanley

6. Humana

Humana


Ticker: HUM

Sector: Healthcare

Market cap: $60.0 billion

Price target: $500

Upside to target: 13.4%

Source: Morgan Stanley

5. Citizens Financial Group

Citizens


Ticker: CFG

Sector: Financials

Market cap: $11.5 billion

Price target: $33

Upside to target: 14.1%

Source: Morgan Stanley

4. S&P Global

S&P Global


Ticker: SPGI

Sector: Financials

Market cap: $84.8 billion

Price target: $411

Upside to target: 15.5%

Source: Morgan Stanley

3. Johnson & Johnson

Johnson & Johnson


Ticker: JNJ

Sector: Healthcare

Market cap: $368.2 billion

Price target: $170

Upside to target: 21.6%

Source: Morgan Stanley

2. Ally Financial

Ally Financial


Ticker: ALLY

Sector: Financials

Market cap: $10.4 billion

Price target: $38

Upside to target: 34.3%

Source: Morgan Stanley

1. PVH

PVH


Ticker: PVH

Sector: Consumer discretionary

Market cap: $4.4 billion

Price target: $87

Upside to target: 39.3%

Source: Morgan Stanley

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