Mar 17, 2023
Stocks are bouncing back after regulators stepped in to protect depositors at the troubled Silicon Valley Bank. But that doesn’t mean it’s time to party according to Morgan Stanley’s chief U.S. equity strategist and chief investment officer Mike Wilson.
“We suggest selling any bounces on a government intervention to quell the immediate liquidity crisis at SVB and other institutions until we make new bear market lows, at a minimum,” he writes in note to investors on Monday.
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Wilson’s team does not consider recent bank failures to be “random or idiosyncratic.” Instead, the events serve as “one more supporting factor” for the team’s negative earnings growth outlook.
The U.S. Federal Reserve has raised interest rates aggressively to tame inflation. And that does not bode well for the bottom line.
“In short, Fed policy is starting to bite, and it's unlikely to reverse even if the Fed were to pause its rate hikes or quantitative tightening — i.e., the die is cast for further earnings disappointments relative to consensus and company expectations.”
Still, despite the gloomy outlook, Morgan Stanley sees upside in quite a few stocks. Here’s a look at three that it finds particularly attractive.
Apple
Apple (AAPL) is a tech behemoth.
In the latest earnings conference call, management revealed that the company’s active installed base has surpassed two billion devices.
While competitors offer cheaper devices, millions of users don’t want to live outside of the Apple ecosystem. The ecosystem acts as an economic moat, allowing the company to earn oversized profits.
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The market likes that: over the past five years, Apple shares have surged more than 230%.
Morgan Stanley analyst Erik Woodring sees more upside ahead for the stock. The analyst has an ‘overweight’ rating on Apple and a price target of $180 — around 19% above the current levels.
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Snowflake
Many consider big data to be the next big thing. And that’s where Snowflake (SNOW) shines.
The cloud-based data warehousing company, founded in 2012, serves thousands of customers across a wide range of industries, including 573 of the Forbes Global 2000 companies.
Momentum is strong in Snowflake’s business. In the three months ended Jan. 31, revenue surged 53% year over year to $589.0 million. Notably, net revenue retention rate clocked in at a solid 158%.
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The company continued to score large customer wins. It now has 330 customers with trailing 12-month product revenue of more than $1 million, compared to 184 such customers a year ago.
Morgan Stanley analyst Keith Weiss has an ‘overweight’ rating on Snowflake with a price target of $215, implying a potential upside of 56%.
Costco
In an era where physical stores are under serious threat from online merchants, Costco remains a brick-and-mortar beast.
Over the past five years, Costco shares have surged more than 150%.
The membership-only big-box store operator is known for selling numerous consumer staples products at low prices. When people become more budget-conscious as a result of inflation, the warehouse retailer’s value proposition is tough to ignore.
In Costco’s most recent fiscal quarter, net sales increased 6.5% year over year to $54.24 billion.
Morgan Stanley analyst Simeon Gutman has an ‘overweight’ rating on Costco and a price target of $520 — roughly 9% above where the stock sits today.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
