Morgan Stanley Recommends Defensive Growth Stocks in Uncertain Market
Amidst an uncertain market environment, Morgan Stanley suggests that investors can regain confidence by considering large-cap defensive stocks. The firm conducted a screening process to identify stocks that have demonstrated relative strength both year-to-date and in recent performance, based on equal weight performance. These stocks are members of the top 1000 by market cap universe, have outperformed on a year-to-date basis, and are classified as growth stocks according to Morgan Stanley's proprietary factor classification model. Additionally, each of these companies has been rated overweight by the firm.
Market Outlook and Strategy
Analyst Michelle Weaver, in a note on Monday, stated, "In the absence of more definitive data around the remaining duration of the business cycle, we think the market will trade in a 'late cycle' manner." According to Weaver, the best way to express this view in a portfolio is to maintain a balance between defensive growth stocks (such as select growth stories and traditional defensive sectors like Healthcare and Consumer Staples) and late-cycle cyclicals (such as Industrials and Energy).
Defensive Growth Stock Picks
Morgan Stanley has identified several names from their playbook that align with their recommended defensive growth strategy. One such pick is McDonald's, which the firm views as a sure defensive play. Despite recent losses driven by the company's opposition to a fast-food bill raising the wage floor for California workers, Morgan Stanley analysts believe that McDonald's, with a 5.7% gain year-to-date, is positioned as a growth stock set to outperform in the coming months.
Another pick is Costco, a membership-based warehouse retailer that has seen its shares soar by over 23% this year. Costco has benefited from consumers increasingly prioritizing value, and the company is scheduled to release its fiscal fourth-quarter earnings on September 26. Positive monthly U.S. sales reports and strong traffic have contributed to the stock's performance, which gained 1.3% on Monday.
Morgan Stanley also favors Apple, with analysts surveyed by FactSet assigning an overweight rating and a $200.72 average price target, indicating a 14.7% upside for the stock. Despite a recent plunge driven by China's iPhone ban among government employees, which impacted investor confidence in Apple's largest foreign market, the stock has still risen by nearly 38% this year.
Other names identified by Morgan Stanley's screening process include emerging AI play Accenture, discount retailer Ross Stores, animal drug company Zoetis, and global hotel chain Marriott.
In conclusion, Morgan Stanley's recommendation of defensive growth stocks reflects their perspective on navigating the current uncertain market environment. By considering these select stocks, investors can potentially position themselves to regain confidence and benefit from the growth potential of these companies.
Morgan Stanley's recommendations provide a strategic roadmap for new businesses navigating the current uncertain market. The firm's focus on defensive growth stocks offers a compelling strategy for businesses seeking to weather market volatility and capitalize on growth opportunities.
Implications for New Businesses
New businesses, particularly those in the growth phase, can take cues from Morgan Stanley's strategy. By aligning their operations with sectors showing relative strength and resilience, they can position themselves for success even in uncertain times. For instance, businesses in the Healthcare, Consumer Staples, Industrials, and Energy sectors may find the current market conditions favorable.
Moreover, the firm's emphasis on maintaining a balance between defensive growth stocks and late-cycle cyclicals underscores the importance of a diversified business strategy. New businesses might consider diversifying their offerings or exploring partnerships in these sectors to mitigate risk and maximize growth potential.
In conclusion, Morgan Stanley's recommendations offer valuable insights for new businesses navigating the current market environment. By aligning with resilient sectors and adopting a diversified strategy, new businesses can position themselves for growth and success, even amidst market uncertainty.