Morgan Stanley's preference for defensive quality stocks has only increased since June, even as major U.S. indexes have continued to reach new highs.
"After a substantial rise in volatility the past two weeks, markets (and investors) are looking for direction. Our view remains that growth is now the primary concern for equity investors, rather than inflation and rates," Michael Wilson, the firm's chief U.S.
equity strategist, wrote in a Monday note to clients. He added that an economic soft landing is still his base case scenario. "We still think it makes sense to skew more defensively in one's portfolio as rates fall further," he said.
Wilson highlighted his stock screen of quality and defensive names, which are long ideas with overweight ratings from the firm's analysts that are also in the top 1,000 universe by market cap. From this screener, the analyst also added three names to his "Fresh Money Buy List": Public Service Enterprise Group , AbbVie and Northrop Grumman . Take a look at some of Morgan Stanley's favorite names below: AbbVie made the cut as one of the firm's top quality and defensive stocks.
The pharmaceutical company "is increasingly diversifying their drug pipeline and is able to deliver above industry average revenue and EPS growth," Wilson wrote in the note, adding that the firm's research suggests that biotech, more broadly, will see outperformance after the Federal Reserve's first interest rate cut. AbbVie, which has seen sales of its once-top-selling Humira drug plummet due to competition from cheaper biosimilars, still has a couple of key immunology treatments that are witnessing strong sales growth. Analysts surveyed by FactSet have a price target on AbbVie shares that suggest just 3.
2% upside from its latest close. This year, the stock is up roughly 23%. Aerospace and defense company Northrop Grumman is a firm favorite due to its long-term visibility and stability.
Morgan Stanley analyst Kristine Liwag views shares as "undervalued" and reiterated her overweight rating on the stock on Friday, noting its attractive free cash flow growth profile among its peers and resilience of its product portfolio tied to the U.S. nuclear triad.
Her $592 price target — which is substantially more bullish than analysts' average price target per FactSet — suggests 19.7% upside for the stock. Facebook parent Meta Platforms is one of the few tech names listed in the firm's screener.
Morgan Stanley analyst Brian Nowak said in an Aug. 6 note that Meta's "micro-level innovation and growth drivers will likely enable it to better navigate and grow than the others" in the consumer internet space, but that the stock's multiple has compressed less than its peers, putting it at a greater risk if the consumer landscape slows further. Still, the firm thinks Meta is best positioned among megacap tech to navigate an uncertain macroeconomic landscape, given its artificial intelligence advances that have driven higher engagement and monetizable time on its platform.
Meta shares have jumped more than 45% this year, and investors have maintained their bullish outlook on the stock after the company exceeded second-quarter earnings expectations and gave a rosy forecast. Other Morgan Stanley defensive and quality favorites include consumer discretionary names Walmart and Lowe's ..
