As investors begin to prepare for the end of the bear market, Morgan Stanley has identified several stocks that are expected to outperform when the next bull market begins. The Wall Street investment bank is expecting a stronger earnings picture in 2024. It also sees several potential cyclical and secular catalysts of the next bull market, including a more accommodative monetary policy, a global growth recovery, artificial intelligence and pent-up demand in investments. and capital investment in parts of consumer services. Morgan Stanley analysts look for the highest quality companies in each sector of the market to identify those companies “most likely to strengthen their sustainable competitive advantage.” Return on net operating assets, management strategy, capital structure and stock buybacks and dividends were also taken into consideration. However, valuation was not part of the equation. Instead, analysts identified the best franchisees “whose business models and market positions will be increasingly different in 2025,” Morgan Stanley wrote in a note Tuesday. Here are 10 names that made the cut. Alphabet will benefit from the continued acceleration of digital transformation that began during Covid, as well as the boom in artificial intelligence, wrote analyst Brian Novak. Search should see significant incremental revenue with next generations of AI leading to higher relevancy, while generative AI and improved algorithmic matching and ad attribution should be a tail wind for YouTube, he said. “We also remain confident that GOOGL faces more manageable incremental costs. We see management focused on sustainably restructuring the cost base and see AI computation at the infrastructure, model and application level driving significant cost efficiencies.” is working to improve, which instills confidence that margins will not shrink over the long term,” Novak said. He has an overweight rating on the stock and a price target of $135, representing a roughly 33% upside from Monday’s close. Meanwhile, Costco is one of the best companies in the wholesale retail sector, said analyst Simeon Gutman. He said Costco’s Kirkland Signature private label, which has generated more than $75 billion in revenue, sets the company apart from rivals. As inflation-stricken consumers seek to trade up for less expensive products, they are turning to private labels, or store-branded products, which bring in higher margins for retailers. “We believe that Covid, inflationary pressures on the consumer, and fluctuating gas prices have strengthened COST’s value proposition, with potentially higher membership stickiness and spending consolidation at COST relative to previous years,” Gutmann wrote. He has an overweight rating and a $520 price target on Costco, which represents a little more than 6% upside from Monday’s close. Analyst Devin McDermott said that in the energy industry, Exxon Mobil has a competitive position with its strong free cash flow and high-return growth products. Exxon will benefit from what is expected to be a multi-year period of strong oil and gas prices. Exxon Mobil is also an industry leader in decarbonization, which should help offset long-term cash flows during declining oil and gas demand, said McDermott, who has a higher rating on the stock. His price target suggests the stock could rally more than 11%. While JPMorgan Chase was initially affected along with the entire banking sector when the Silicon Valley bank collapsed, it remains one of Morgan Stanley’s favorite stocks in this sector. Sources told CNBC’s David Faber that JPMorgan is advising the now-troubled First Republic Bank on strategic options, including raising capital. Analyst Betsy Grasek expects positive operating leverage in 2023 for JPMorgan, with revenue rising 12% and expenses slowing 8%, year over year. JPM’s consumer and community bank arm is also taking deposit share, with 500 new branches opened since 2017, he said. Grasec has an Overweight rating on JPM and a price target of $173, which is a 36% upside from Monday’s close. And Yum Brands, the parent of KFC, Taco Bell and Pizza Hut, is one of the most globally scaled and diversified restaurant-chain operators that Morgan Stanley believes will deliver 6% store growth and high revenue. Single-digit systems can sustain sales growth. next several years. “YUM’s franchised model is the least asset-light, cash productive, and provides the least volatility in earnings,” said analyst Brian Harbour. He has overweight rating on the stock. His $155 price target suggests the stock could rally more than 20% by Monday’s close. — CNBC’s Michael Bloom contributed reporting.
Source: www.cnbc.com
