- Morgan Stanley’s annual Vintage Values Stock List combines fundamental and quantitative analysis.
- This year’s selection revealed the company’s top 15 stock picks from North American analysts.
- On average, these 15 stocks have higher-than-market cash flow and earnings revisions.
It’s been a tough world for investors amid a prolonged battle with rising prices and a looming recession.
The Fed’s hawkish stance on inflation at Friday’s Jackson Hole meeting sent stocks tumbling, ending a rally that began in mid-June.Fears of heightened uncertainty and a potential recession also follow CBOE Volatility Index (VIX)a traditional indicator of market volatility, surged.
Morgan Stanley’s inventory of retro values is a welcome respite when realizing gains are as difficult as they are now. Published annually, the list provides a selection of the company’s best stock recommendations for a one-year buy-and-hold investment horizon.
“In compiling this list, our stock-picking framework combines analysts’ A fundamental view combined with quantitative analysis.”
Last year’s Vintage Values list covering August 2021-August 2022 outperformed S&P 500 Index 100 basis points. Of the 50 stocks that Morgan Stanley North American analysts recommend this year, only the top 15 make the list.
To narrow the selection, each suggested stock was assessed extensively for its “macro exposure, sector positioning, valuation and risk-reward profile, paying particular attention to bias in analyst bull and bear valuation estimates,” Wilson explained.
Next, cross-check the quantitative quality of the stock and the ESG score. To narrow down the bottom 15, the list was considered to be matched against Wilson’s senior equity sector allocation so that its weighting matches his current positioning, which includes overweight positions in healthcare and real estate.
Morgan Stanley’s 15 Best Stocks to Buy and Hold for the Next 12 Months
Bottom line, Morgan Stanley’s Vintage Values list prefers high-quality stocks. The stocks on the list trade at an average of 11% higher than the market’s forward P/E ratio and 17% higher price-to-sales ratio, which looks like the stock list is trading at a premium.
But according to Wilson, the list is “much cheaper” than the market when considering key cash flow-based valuation metrics like enterprise value versus operating cash flow, and the free cash flow yield is also more attractive at 5% This compares to 4.7% of the market. With relative return revisions falling sharply across the market, Wilson noted that the Vintage Values list has a “much better” positive correction profile than the S&P 500’s 3-month negative smoothing correction.
The list skews more toward large companies, with 63% of its stocks classified as large-cap or super-cap, Wilson said. He also noted that the average market capitalization of the list is $211 billion, well above the S&P 500 average of $74 billion.
60% of the names on the list are growth stocks, 7% of the companies are value stocks, and the remaining 33% are not in any investment style. That’s well above the S&P 500’s 39% growth weighting and well below its 25% value weight, Wilson noted.
Finally, Wilson highlighted that the Vintage Values list is slightly more defensive than the broader market, with 33% of its stocks classified as cyclical and 27% as defensive, compared to the S&P 500’s weighting of 41% and 24%.
Below is an updated Vintage Values list for the 15 stocks over the next 12 months, along with each company’s ticker, sector, market cap, price target, and respective analyst commentary.
