Ferrari Replaces Tesla As Morgan Stanley's Top Pick

Ferrari has replaced Tesla as Morgan Stanley's firm-wide top pick.

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The price target for Ferrari was raised by $30 to $310 by analyst Adam Jonas, implying the stock could gain 14.2% over the next year. It is Ferrari's defensive nature that leads Jonas to be optimistic about the company.

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He said in a note to clients that he believes RACE is the best-positioned company in our coverage as we face a highly uncertain macroeconomic and geopolitical environment. “Our research suggests that RACE has many levers to pull for both growth and downside protection, within a wide range of macro outcomes, in addition to its strong fundamentals.”

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The stock also has an attractive risk-reward ratio and avoids much of the EV hype.

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Aside from the company's performance- and luxury-centric brand, Jonas emphasized that the company's business model is predictable and is based on a moat of scarcity around the business model. This type of focus, he explained, makes it very hard for competitors to copy Ferrari's business model overnight, as well as allows Ferrari to "manage its own destiny" as he put it.

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In spite of this, he noted that the company has sound long-term plans as well as an underestimated opportunity in the market for electric vehicles. It is Jonas' belief that the company can shift away from its traditional internal combustion engine - which has been used since the company was founded - without losing the DNA of the car. With the expectation that ICE and EV car sales will nearly reach parity within the company by 2032, the electric vehicle offering for the company may be as high in demand as its traditional car offerings.

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The increase in Ferrari’s price target is nearly half the result of the fall in the dollar against the euro in recent weeks, which has helped the Italy-based company to increase its price target by more than half.

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There was a 0.3% gain for Ferrari in the premarket. In this year alone, it has gained 27.6%, part of an automakers' rebound that fuels Jonas' argument for being increasingly cautious. Other reasons for concern included signs of unaffordability and auto credit pressure.

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The stock of Tesla fell 0.1% in premarket trading. Stock prices have soared 60.5% this year after falling 65% in 2022. Tesla is still considered overweight by Jonas, and his $220 price target implies an 11.2% upside from Friday's close.