As the earnings season heats up, Morgan Stanley is betting on these 4 stocks.
Companies began reporting earnings this week and, so far, more than 60 S&P 500 companies have already reported.
While anxieties have been high heading into this earnings season as corporate forecasts for Q2 have been lowered significantly leading into it, companies have so far been easily beating those forecasts and expectations for negative growth are already expected to turn positive.
In a note to clients, Morgan Stanley (NYSE: MS) cautioned that guidance for the second half of 2019 is too high, and said that it expects companies to soften expectations for the rest of the year.
However, there are some opportunities to be had, and the firm’s picks for this earnings season might surprise you.
In the note, the firm highlighted stocks including, Gilead Sciences (NASDAQ: GILD), PG&E (NYSE: PCG), and Uber (NYSE: UBER), picks that differ from what the rest of Wall Street has their eyes on.
“For each of these stocks, our analyst has a view that diverges from the Street’s, and expects a near-term event to drive the stock as the market’s view moves closer to ours,” Morgan Stanley analysts wrote in the note.
The firm noted that many investors have concerns about ride-hailing pioneer Uber’s “growth durability” and their path to profitability. But Morgan Stanley still likes “this set-up… particularly as we’re entering a 2H of easing Y/Y ride sharing growth compares, an (assumed) relatively stable competitive landscape in the US and abroad, and a still-long runway,” the analysts wrote.
And they continued that the company’s—which reports early next month—ability to beat ride-hailing bookings in the near term is “key to turning investor sentiment and interest,” they wrote.
Uber went public on May 10, and the stock is up 4% since then.
For the troubled California utility PG&E, the firm expects a judge to deliver a favorable ruling for the company regarding its exclusive right to offer a bankruptcy pre-organization plan following the deadly wildfires in the state last year sparked by the company’s equipment. The analysts expect a ruling in PG&E’s favor will remove overhang for the stock.
PG&E’s stock has been beaten down since late 2018 following the California wildfires and is currently down -22% so far this year.
On to Gilead, which is expected to report on July 30, Morgan Stanley’s analysts are betting that the biotech’s HIV franchise will help it deliver a second quarter revenue beat.
“We are also lower on 1H spending, which in combination with higher revenues would position GILD well for a 2Q19 EPS beat,” the analysts wrote in the note. The stock is up 7.45% so far this year.
As for one stock Morgan Stanley is bearish on, the firm believes there’s near-term downside ahead for industrial supply company W.W. Grainger (NYSE: GWW) as the analysts believe the company will be forced to lower prices as “underlying demand appears to have decelerated.”
W.W. Grainger’s stock is down nearly -5% year-to-date.