In the midst of continued new highs in major U.S. indexes, Morgan Stanley has been doubling down on its preference for defensive quality stocks. Chief U.S. equity strategist, Michael Wilson, emphasized the importance of growth over inflation and rates in the current market environment. With volatility on the rise, many investors are seeking guidance on how to navigate the uncertain terrain of the stock market.
Wilson advocates for a defensive skew in one’s portfolio, especially as rates continue to fall. He highlights a stock screen that focuses on quality and defensive names, selecting long ideas that are in the top 1,000 universe by market cap. These include companies like AbbVie, Northrop Grumman, and Public Service Enterprise Group, all of which have been identified as top quality and defensive stocks by Morgan Stanley analysts.
AbbVie, a pharmaceutical company, has caught the attention of Morgan Stanley for its growing drug pipeline and strong revenue growth. Despite a decline in sales of its once-popular Humira drug, AbbVie has been able to maintain above-average revenue and EPS growth. The firm believes that the biotech sector, including AbbVie, will see outperformance following the recent interest rate cut by the Federal Reserve.
Aerospace and defense company, Northrop Grumman, has been praised for its long-term visibility and stability. Analyst Kristine Liwag views the company as undervalued and has assigned it an overweight rating. With an attractive free cash flow growth profile and a resilient product portfolio tied to the U.S. nuclear triad, Northrop Grumman is poised for success in the current market landscape.
Among the few tech names favored by Morgan Stanley is Meta Platforms, formerly known as Facebook. Analyst Brian Nowak highlights the company’s micro-level innovation and growth drivers as key factors in its success. Despite potential risks due to market slowdowns, Meta is seen as well-positioned to navigate the macroeconomic landscape with its advancements in artificial intelligence.
In addition to AbbVie, Northrop Grumman, and Meta Platforms, Morgan Stanley’s list of defensive and quality favorites includes consumer discretionary giants like Walmart and Lowe’s. These companies have shown resilience and stability in the face of market fluctuations, making them attractive options for investors seeking quality stocks.
Morgan Stanley’s strategic focus on defensive quality stocks reflects a cautious yet optimistic outlook on the current market environment. By prioritizing growth and stability, the firm aims to guide investors towards success in an increasingly volatile stock market.