Canadian company is among Morgan Stanley analysts’ 45 most compelling stock picks

Daily digest of research and analysis by Globe and Mail market strategist Scott Barlow

BofA Securities’ U.S. quantitative strategist Savita Subramanian details how the outlook for equities has deteriorated since the start of 2022 and lowers her forecast for the S&P 500,

“We didn’t expect a war, and the Russian-Ukrainian conflict has exacerbated commodity price inflation and has also hit European GDP hard. The Fed (and other central banks) have taken a much more hawkish stance. Chinese growth is deteriorating (rating) and other cyclical indicators (trucking data rating, news flow rating) have reversed. All this in the context of a cyclical peak in the S&P 500 EPS in the face of secular pressure on margins (de-globalization), still high valuations and tapering of the Fed still in play… But good: post-COVID visibility, resilience Our analyst survey and earnings season revealed some easing in labor and commodity prices and manageable margin risks post-COVID (see survey). Better than expected consumption (especially in the lower income cohort) despite inflation and a sharp increase in service spending (admittedly at the expense of large spending) is a positive. A likely spike in rates and rate volatility could lower the S&P 500 discount rate… We are cutting our S&P 500 year-end target by 100 points to 4500 based on a higher trading price low offset today by a reduction in our equity risk premium assumption on lower rate volatility . Note that the average peak-to-trough decline of the S&P 500 amid recessions has been around 32%. Thus, the 10% drop in the S&P since the beginning of the year can be very roughly interpreted as a one-third reduction in the chances of a recession. »

“BofA: outlook has deteriorated significantly since the start of the year, reduction in SPX forecast” – (research excerpt) Twitter

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Credit Suisse’s US quantitative strategist Patrick Palfrey examined stock valuations and found that companies that outperform during periods of rising inflation trade at a discount,

“Despite concerns about inflation, internal market data does not appear to reflect such anxiety. Specifically, companies that benefit from rising inflation are trading at a steep discount to their peers that benefit from lower prices, despite expected significantly faster EPS growth (13.1% vs. 8.0%)”.

Mr. Palfrey listed the top 50 stocks that benefit from inflationary environments. Caterpillar Inc., General Electric Co., Under Armor Inc., Twitter Inc., Albemarle Corp., Dow Inc., SolarEdge Technologies Inc., Bath & Body Works Inc. and Mosaic Co.

“CS: Top 50 US beneficiaries of inflationary pressure” – (table) Twitter

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Morgan Stanley has launched a new initiative, listing the most compelling stock picks from its North American stock analysts. A Canadian company, Suncor Energy Inc., came out on top.

Others of interest to domestic investors on the 45-member list (in no particular order) include Warner Music Group Corp., Ferrari NV, Amazon.com Inc., Constellation Brands Inc., Procter & Gamble Co., Abbott Laboratories, Baxter International Inc., Thermo Fisher Scientific Inc., Eli Lilly & Co., Northrup Grumman Corp., Sunrun Inc., Palo Alto Networks Inc., Apple Inc., Salesforce Inc. and Corteva Inc.

“Morgan Stanley – 45 Most Convinced Analyst Stock Ideas” – (table) Twitter

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Derivation: “Humans can’t let go of a fundamental myth about dog breeds” – Atlantic

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