Anika Begay
Morgan Stanley’s preference for defensive quality stocks has only increased since June, even as major U.S. indexes have continued to hit new highs. “After a substantial increase in volatility over 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. “We still think it makes sense to lean more defensively in your portfolio as rates decline further,” he said. Wilson highlighted his equity screening of defensive and quality names, which are long ideas rated overweight by the firm’s analysts who are also in the top 1,000 universe by market cap. The analyst also added three names to his “Fresh Money Buy List” from that screener: Public Service Enterprise Group, AbbVie, and Northrop Grumman. Below, check out some of Morgan Stanley’s favorite names: AbbVie was chosen as one of the firm’s top defensive and quality stocks. The drugmaker “is increasingly diversifying its drug pipeline and is able to deliver above-sector revenue and EPS growth,” Wilson wrote in the note, adding that the firm’s research suggests the biotech more broadly will outperform after the Federal Reserve’s first interest rate cut. AbbVie, which has seen sales of its once best-selling drug Humira plummet amid competition from cheaper biosimilars, still has a couple of key immunology treatments that are seeing strong sales growth. Analysts polled by FactSet have a price target on AbbVie shares that suggests just 3.2% upside from the last close. The stock is up about 23% this year. Aerospace and defense company Northrop Grumman is a favorite for its long-term visibility and stability. Morgan Stanley analyst Kristine Liwag considers the stock “undervalued” and reiterated her overweight rating on the stock on Friday, noting its attractive free cash flow growth profile among its peers and the resilience of its U.S. nuclear triad-related product portfolio. Her $592 price target, which is substantially more bullish than the average analyst price target for FactSet, suggests a 19.7% upside for the stock. Facebook parent Meta Platforms is one of a handful of tech names listed on 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 position it to navigate and grow better than others” in the consumer internet space, but that the stock’s multiple has compressed less than its peers, exposing it to more risk if the consumer landscape slows further. Still, the firm believes Meta is best positioned among tech megacaps to navigate an uncertain macroeconomic landscape, given its advances in artificial intelligence that have led to greater engagement and monetizable time on its platform. Meta shares have jumped more than 45% this year, and investors maintained their bullish view on the stock after the company beat second-quarter earnings expectations and issued a rosy outlook. Other defensive and quality picks for Morgan Stanley include discretionary consumer names Walmart and Lowe’s.
