Morgan Stanley strategist who called sell-off sees it getting worse, recommends these stocks to weather bear
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Mike Wilson of Morgan Stanley sees even more market pain, and he recommends some cheap stocks with upside that can weather this downturn. We remain bullish but it is no longer consensus. It’s still too early to be bullish, however, as the growth risks are only beginning to emerge. Wilson wrote Monday in a note that the top areas of concern are margin pressure, consumer spending ability/willingness and tech spending downturn. Wilson, the chief U.S. equity strategist of the bank and chief investor officer was a notable bear on Wall Street. He called the selloff earlier this year. Wilson had the lowest year-end 2022 target for the S & P 500 in CNBC’s annual market strategist survey . This year stocks have been struggling as investors consider persistent inflation, Fed Reserve rate-hiking cycles, recession risks and other factors such as war in Ukraine, Covid pandemic, and ongoing instability. The S & P 500 on Friday fell into bear market territory briefly , dropping more than 20% below its January all-time high. Despite the declines, investor exposure to equities remains high — a sign of further market deterioration ahead — Wilson noted. Wilson noted that as equity allocations increase, it will further impact equity prices. The strategist sees the S & P 500 reaching 3,400 by the end of the second-quarter earnings season. Friday’s close was at 3,900. Wilson explained that “until then vicious bear market rallies must be used in order to lessen the area most at risk to the coming earnings reset.” Wilson recommends that investors adopt a GARP strategy, which is growth at a fair price, to help stocks pick up in such an environment. GARP uses a combination of value and growth investment metrics. Wilson stated that a GARP screening was conducted to identify high-quality companies capable of weathering the bear market. Wilson also said that they could see potential upside even after it ends. Morgan Stanley rated stocks that had strong free cash flow as well as an overweight rating. Here are five stocks on Morgan Stanley’s list. Morgan Stanley’s stocks are defensive. This list includes stocks that are considered stable in spite of changes in the economy, including consumer staple stocks and health care stocks. Morgan Stanley’s screening panel was made up of Coca-Cola as a popular staple stock. This year the stock has beaten the market by 5.6%, and will rise to 6.6% in 2022. With a target price nearly 25% higher that Coca-Cola’s Friday closing price, the firm expects more upside. CVS Health made it onto the list. The health-care stock is down for the year, but it’s still faring better than the S & P 500. Morgan Stanley anticipates that CVS will see more upside than 33% by Friday’s closing. Morgan Stanley also has Exxon Mobil on its GARP screen. The energy stock is one of the top 10-performing S & P 500 stocks this year, up more than 53%. As the Ukraine crisis impacts energy commodities prices, oil and gas companies saw their shares rise in 2022. Two other names on the firm’s list are Deere & Co and Abbott Laboratories . —CNBC’s Michael Bloom contributed reporting.
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