- Morgan Stanley has added three new high-quality defensive stocks to its "Fresh Money Buy List."
- These names could help investors hedge against macro uncertainty as markets await fresh growth data.
- The firm expects minimal upside for the S&P 500 through year-end, and instead sees rangebound trading.
Morgan Stanley expanded its list of recommended equities with three high-quality stocks, as the bank veer further into defensive positioning.
These names could help shield against ongoing macro uncertainty, which Morgan Stanley does not expect will resolve anytime soon.
Instead, analysts expect the S&P 500 to trade between 5,000 and 5,400 through upcoming months.
The note argues that stocks are already priced to perfection, and valuations are high amid increasingly uncertain US growth. Volatility will, therefore, continue until markets see new evidence that growth can keep up, or if the Federal Reserve enacts a satisfying policy response.
"As a result, we continue to recommend more defensive stocks in sectors like Utilities, Healthcare, Consumer Staples and parts of Real Estate which tend to do better than quality growth when growth is the main issue," Wilson wrote.
(1) Public Service Enterprise Group
Morgan Stanley said this utility firm offers investors a high return on equity and an above-average growth opportunity.
Operating under the ticker PEG, the company is a premium-regulated energy firm that benefits from a stable underlying business, the bank argued. It engages in the transmission of electricity and natural gas.
So far this year, the company has rallied 30.93% to $79.83, notching a market capitalization of $39.78 billion.
Morgan Stanley holds an Overweight rating on the firm, with a price target of $78 per share.
(2) Abbvie
The bank added ABBV to its list as a way for investors to gain exposure to the healthcare sector.
The large-cap name is a pharmaceutical company with an increasingly diverse drug pipeline, Morgan Stanley said, helping it notch industry-beating average revenue and earnings-per-share growth.
Separate research from the bank found that investors should seek biotech exposure to outperform equities during the first interest rate cut. This corner of the market is a relative outperformer when rates are both high and falling, the note added.
Abbvie has risen 22.43% year-to-date, reaching a high of $189.7. Its market capitalization is $335.48 billion.
Morgan Stanley holds an Overweight rating on the company, with a price target of $211 per share. That signals that Abbvie has 11.2% more to gain from current levels.
(3) Northrop Grumman
NOC, the defense and aerospace company, joined Morgan Stanley's list as a premium equity for exposure to industrials.
The firm has not kept up with sector peers over the past year, and is up only 6.6% to $498.32 per share. The company's market capitalization stands at $72.29 billion.
Still, analysts consider it an undervalued player that will benefit from long-term visibility and stability. Northrop's recent earnings have already boosted confidence, with earnings-per-share surging past estimates.
The bank holds an Overweight rating on the firm, with a price target of $592 per share. That indicates 18.7% upside ahead.
Morgan Stanley's Fresh Money Buy List now totals 10 firms; other names included are Coca-Cola, McDonald's, Verizon, and Walmart. The list's current total return since inclusion notched an equal weight average of 16.95%.