Sometimes the best advice you dont have to pay for
Morgan Stanley, the New-York Based Investment Bank recently published a report detailing their top 30 stocks for a "sideways market."
Essentially the way Morgan Stanley sees it -- after a bull market following the financial crisis of 2008 we are due for a correction, or should not expect to see the roughly 10.5% average annualized return we have seen post 2008. While I tend not to favor macroeconomic trends I think preparing for a sideways market may be something to consider.
"Growth" investing has outpaced "Value" investing significantly post 2008, with "Growth" roughly meaning companies with high revenue growth rates which may not be profitable, while "Value" investing roughly meaning trying to find mature companies with predictable cash flows that may be trading at a discount, or have unrealized value.
It is reasonable to expect value investing to come back into favor, but whether that is 1 month from now or 3 years from now, no one knows, and that's what makes market timing so hard.
In a sideways market Morgan Stanley seeked to identify stock with sustainable competitive advantages, which will provide stable revenue and advantageous economic conditions. They then ran the stocks they identified through a quantitative model to come up with their top 30 ideas.
BUT WAIT - What's the catch, why would Morgan Stanley share such information -- for free? Why not? When Morgan Stanley shares their stock picks with the world it is more likely people will buy them and them to be proven right. Plus Morgan Stanley is not in the stock picking buisness, and sharing their thoughts does nothing to impair their buisness...sometimes the best advice, you don't have to pay for.
Here are each of their picks with a little sentence from each. I will add a my own rating 1-5 and my thought -- where I know enough to comment!
Keep in mind these picks are meant to be defensive over a three-year time horizon
Accenture (ACN): "Beneficiary of shift toward Digital and Cloud adoption"
3 - IT consulting powerhouse, expensive, but plays into long term trends
Activision Blizzard (ATVI): "We see ATVI driving and continuing to benefit from the industry's digital shift from "units sold" to a model based on users, engagement, and digital monetization."
4 - Might be the best pure-play video game producer
Alphabet (GOOGL): "Core search continues to deliver strong growth, especially on mobile (which we view as one of the most strategically valuable assets anywhere) but even in the 20-year old desktop business, which we view as a cash annuity."
5- With Google you get sustainable advantages in search and advertising as well as a leading VC firm with technical know-how
Amazon.com (AMZN): "An expanding gross profit pool is enabling Amazon's investments."
5- Amazon is the greatest company in the world and everyone should own a piece
BlackRock (BLK): "Among the best positioned to grow and take share given its product breadth at both ends of the asset management barbell, combined with scale."
3- Their investing products will continue to become more popular
BNY Mellon (BK): "BK made the call to reinvest the entirety of its tax reform benefit ($300mn annually) while its competitors are returning the money to shareholders. We expect that BK'd leading the way in tech investment (16% of revenue vs. 14% average at peers) will win market share over the next 5-10 years."
1- The reason BNY is investing in technology more than their peers is because they are already behind
Charles Schwab (SCHW): "Secular winner from wealth management's digital revolution and regulatory evolution."
3- The most innovative of the discount brokers
Constellation Brands (STZ):" We believe STZ can grow its beer topline at a high-single-digit rate over the medium term, supported by favorable sub-category positioning within the high-end import segment, advantageous demographics, solid pricing, as well as alternative packaging formats (including draft and can) and new product launches (Familiar and Premier)."
3- Owns some of the strongest brands in the world in any industry
Dollar General (DG): "Our work with our Economics team points to an emerging Bull Case scenario where traditional Dollar Stores should benefit from jointly strong macro and micro backdrops."
2- Discount retail appears to have legs
Domino's Pizza (DPZ): "Technology leadership and pizza category consolidations will remain key for Domino's success, especially as delivery availability and utilization grow."
1- Incredible CEO leaving, I question how much room to run
Estée Lauder (EL): "EL has favorable category exposure to the high growth, high margin prestige beauty
1- Strong band, no trend, questionable value
First Republic Bank (FRC): "FRC is a high-quality bank that grows much faster than peers without taking undue risk."
1- I don't see the competitive advantage in a consolidating industry
Gartner (IT): "Gartner looks well-positioned to sustain superior top-line growth."
3- Consulting powerhouse that fits long-term trends
Intuitive Surgical (ISRG): The base business - robot-assisted, minimally invasive surgery - remains robust."
2- Powerful tech, sky-high valuation
IQVIA (IQV): "A combination of the largest global clinical drug trial sponsor, Quintiles, and tech company IMS Health."
Not a company I can sufficiently comment on
JPMorgan Chase (JPM): "JPM's push into new markets, opportunity to gain share, efficiency improvements, and benefit from deregulation drive our positive long-term view."
3 - The most powerful and well-run bank -- survival of the fittest on Wall St.
Marsh & McLennan (MMC): "MMC is a global, diversified franchise that can deliver sustainable, double-digit EPS growth."
1- There are better options like MKL, in insurance
Microsoft (MSFT): "Ramping Public Cloud Adoption + Improving Margins = Framework for a $1 Trillion Market Cap… And Beyond."
5- Growth and value all in one. Leadership and innovation is now a strength
NextEra Energy (NEE): "A best-in-class utility coupled with a premier renewable energy business that should benefit from the continued rapid decline in renewable energy."
2- Can benefit from shift in energy and subsidies, but more uncertain
Northrop Grumman (NOC): "Ramping production and development programs driving solid growth through decade-end."
1- Too cyclical
Philip Morris International (PM): "Compelling risk-reward as tobacco weakness is overstated."
4- Value and strong brands
Prologis (PLD): "We believe PLD's healthy balance sheet and strong operating platform positions them well to be opportunistic if opportunities arise."
Not a company I can sufficiently comment on
Raytheon (RTN): "Notable exposure to missile defense and weapons support healthy growth."
1- Too cyclical
Salesforce.com (CRM): "A core investor debate remains leverage in the model; we estimate current unit economics support a path to mid-30's operating margins at Salesforce."
5- Sustainable advantages, excellent leadership, with a tech hedge fund built in
SBA Communications (SBAC): "Tower leasing is being supported by several deployments, including FirstNet and Sprint's 2.5 GHz, while 5G looms on the horizon as a supportive factor long-term."
Sherwin-Williams (SHW): "Sherwin-Williams is likely to continue to grow in excess of a still-strong US architectural paint market, due to its leverage to the professional contractor, aggressive store count expansions, and unique capacity to provide more convenient and holistic service to the largest paint consumers."
2- Strong brand
Thermo Fisher Scientific (TMO): "The dominant force in Tools."
2- Expensive but moat is there
UnitedHealth Group (UNH): "Among managed care organizations, UNH is furthest along integrating assets through the healthcare system."
Not a company I can comment on sufficiently
Visa (V): "One of the best business models we’ve seen."
3- The steadiest play to can make
Walt Disney (DIS): "Digital makeover at a historic discount."
5- I cant put it better than their 6 words.
My 5 Star Ratings:
(I own all 5, you should too)