In Light Of An Upcoming Bear Market, Morgan Stanley Recommends Purchasing These Quality Stocks

Among the stocks, Morgan Stanley expects to outperform when the bull market returns are those identified as investors prepare for the end of the bear market.

‍

According to Wall Street investment bankers, profits should improve in 2024. Moreover, the team also sees several potential cyclical and secular catalysts of the next bull market, which include more accommodating monetary policy, a stronger global economy, artificial intelligence, as well as pent-up investment and capital investment in the consumer services sector.

‍

Morgan Stanley's analysts determined the companies that are the best long-term picks by identifying those companies that are "likely to strengthen their sustainable competitive advantage" in each market sector and that they believe are likely to strengthen their sustainable competitive advantage over the long run. We also evaluated the company's management strategy, capital structure, stock buybacks, and dividends in addition to the return on net operating assets.

‍

In spite of this, valuations didn't always play a role in the decision-making process. A Morgan Stanley note published on Tuesday explains that instead of identifying the best franchises, the analysts identified those "whose business models and market positions will remain increasingly differentiated into 2025."

‍

Among the names that made the cut, here are ten of the most notable ones.

‍

• Alphabet

‍

• American Express

‍

• Costco Wholesale

‍

• Eli Lilly Overweight

‍

• Exxon Mobil

‍

• JPMorgan Chase

‍

• Microsoft

‍

• NextEra Energy

‍

• Northrop Grumman

‍

• Yum Brands

‍

Brian Nowak, a research analyst at Fitch Ratings, recently wrote that Alphabet's growth will be bolstered by the faster-than-expected pace of change generated by the digital transformation that began during Covid.

‍

Using next-generation AI to enhance search results is expected to result in significant incremental revenue for search engines, while improved algorithm matching, integrated advertising attribution, and generative AI should lead to significant incremental revenue for YouTube, he added.

‍

Also, we believe GOOGL's incremental costs will remain manageable over the next few years. As a result of management's efforts to reengineer the cost base to be more durable and GOOGL's efforts to improve AI compute efficiency at the infrastructure, model, and application levels, Nowak said that there is a strong chance that margins won't compress long-term.

‍

The analyst has an overweight rating on the stock, and he has set a price target of $135, which suggests an upside of approximately 33% in price from Monday's closing price.

‍

Simeon Gutman, an analyst at the Gutman Advisory Group, said that Costco Wholesale is one of the most successful retailers in the world.

‍

According to him, the Kirkland Signature private label, which has grown to over $75 billion in revenue, sets Costco apart from its competitors. In times of inflation, consumers are turning toward private-label products, or store-branded products, which are bringing retailers higher margins as they look to trade down in price to less expensive products.

‍

As Gutman writes, "we believe that Covid, as well as inflationary pressures on consumers as well as the volatility of gas prices, have enhanced COST's value proposition, resulting in an increase in membership stickiness and solidification of spending at COST as compared to years past."

‍

As of Monday's closing price, his rating on Costco is overweight, and he expects the stock to reach $520 in the near future, representing an increase of more than 6% over Monday's close.

‍

According to analyst Devin McDermott, Exxon Mobil is poised to be a competitive force in the energy industry due to its strong free cash flow and high-return growth products. McDermott anticipates that oil and gas prices will continue to rise for a number of years.

‍

McDermott, who has an overweight rating on the stock, believes that Exxon Mobil is one of the leaders in decarbonization, which should help mitigate the risk of an erosion in oil and gas demand over the long term, him.

‍

There is a chance that the stock could rally more than 11% based on his price target.

‍

In spite of the fact that JPMorgan Chase has been hit hard by the collapse of Silicon Valley Bank, along with all of the banking sector, Morgan Stanley still holds it as a favorite stock in the sector. It has been reported that JPMorgan is now advising First Republic Bank on a number of strategic options, including raising capital, to avoid bankruptcy.

‍

JPMorgan Chase and Co. is expected to have positive operating leverage in 2023 with revenues up 12% and expenses rising a slower 8%. JPMorgan's consumer and community banking unit currently holds a majority of bank deposits thanks to 500 new branches opened since 2017, according to analyst Betsy Graseck.

‍

There is an overweight rating on JPM by Graseck, which implies a 36% upside from Monday's close, and a price target of $173, implying a 36% rise from that price.

‍

As a result, Morgan Stanley believes that Yum Brands, the parent company of KFC, Taco Bell, and Pizza Hut, will be one of the few restaurant-chain operators with a global scale and diversified business model that will be able to sustain 12-25% store growth over the next few years, and a high single-digit system sales growth over those years.

‍

Analyst Brian Harbour states that YUM's franchised model has some of the least assets, generates cash quickly, and offers low earnings volatility compared to other franchised models.

‍

It is the analyst's opinion that the stock has an overweight rating and is likely to rally more than 20% from Monday's close to $155 in the near future.