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Morgan Stanley says industrial companies will dominate the market going forward — here are the 8 stocks it loves the most

caterpillar equipment

  • Morgan Stanley is the most bearish firm on Wall Street when it comes to equities, but that doesn't mean the firm thinks the market is devoid of money-making opportunities.
  • The firm is bullish on the industrial sector and has identified eight stocks it thinks will outperform the broader market going forward.

Morgan Stanley is the most bearish firm on Wall Street right now when it comes to stocks.

Over the past few weeks, it has made no bones about what it calls a "rolling bear market" — or the the type of long, drawn-out pullback that infects sectors one by one.

The firm has been particularly pointed in its comments about tech, which has led major indexes to record highs but is now seen by Morgan Stanley as vulnerable to a sharp sell-off.

But this doesn't necessarily mean the firm thinks all areas of the stock market should be off-limits. It just means investors need to take a deep breath and look at industries that are depressed, underappreciated, or both.

In the eyes of the equity strategists at Morgan Stanley, the industrial sector fits this to a tee. The firm argues that industrials possess the appealing combination of attractive valuation and future profit upside.

On the valuation front, industrials have become cheap relative to the broader market, even after a massive spike following the 2016 election. This dynamic is shown in the chart below.

Screen Shot 2018 09 13 at 3.36.38 PM

In terms of earnings growth, Morgan Stanley notes that upward revisions have diverged from actual performance, which suggests a catch-up is coming. The firm also forecasts that industrial companies will sink enough money into capital expenditures to keep profits growing, even as late-cycle pressure mounts.

Morgan Stanley has even gone as far as to highlight eight industrial stocks it loves and expects to outperform.

Here are the firm's single-stock picks, which may help you ride the predicted wave higher in industrials:


Ticker: AA

Market cap: $7.8 billion

Price target: $57

Rationale: "After a post-2Q18 sell off, we see compelling valuation and a constructive 4Q18 setup."

Source: Morgan Stanley

American Axle

Ticker: AXL

Market cap: $2 billion

Price target: $22

Rationale: "AXL plans to drive leverage down from ~3x to ~2x by the end of 2019, with the potential for share buybacks in 2020+."

Source: Morgan Stanley


Ticker: CAT

Market cap: $84 billion

Price target: $187

Rationale: "With trade and peak cycle fears overblown and ~30-40% of the portfolio at trough, we see an attractive set up."

Source: Morgan Stanley

See the rest of the story at Business Insider

Full "The Business Insider: The Money Game" article

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