Morgan Stanley (NYSE: MS) just released a report on their top stock picks for 2019.
Much like Goldman Sachs (NYSE: GS) and a chorus of prominent voices on Wall Street, Morgan Stanley sees a rough year ahead, and believe 2019 will be a year of consolidation in the stock market.
Still, the bank put out a list of stocks in their report that they believe are capable of growing earnings even if we enter a recession or the stock market nosedives.
Here’s what you need to know about three of the stocks on their list that I find the most compelling right now.
Pluralsight (NASDAQ: PS)
Pluralsight (NASDAQ: PS) is an online education company that offers online course categories covering a wide range of business skill sets, including network security, Big Data platforms, architecture and construction, manufacturing and design, and project management.
“Today, we have more than 6,700 on-demand and online courses on our platform and are adding on average more than 80 new courses each month,” the company said in its IPO prospectus.
Pluralsight’s May IPO raised $310.5 million with an offering of 20.7 million shares that opened at around $20. Shares peaked in mid-September at $38 and have since tumbled along with the rest of the market and are now sitting at $24.
But the company is seeing “exceptional” business-to-business activity and saw Q3 billings growth of over 50%.
“We believe Pluralsight is well positioned to help enterprises address the need for IT knowledge while managing an accelerating industry-wide talent gap,” said Morgan Stanley’s Brian Essex.
“The platform is driven by machine learning technology that not only enables a more efficient learning process at the individual level but also enables enterprises to efficiently quantify, develop, and manage talent across technology platforms,” Essex said.
Seven Wall Street analysts rate the stock a Buy and their average price target for PS is $34.93, indicating possible upside of 43.51% over the next twelve months.
Vertex Pharmaceuticals (NASDAQ: VRTX)
Biotechs have taken a serious beating lately, and Vertex (NASDAQ: VRTX) is no exception.
Shares peaked on October 1st at $194, then fell to $153 by the end of that month. The stock is now back up $173 after a wild two months.
However, Vertex is focused primarily on cystic fibrosis (CF) and has some of the best growth prospects of all large-cap biotechs.
“The company’s CF therapies Kalydeco and Orkambi collectively generated ~$2.2B in sales in 2017, and a third therapy (Symdeko) was approved in early 2018, which we believe could generate ~$750M in sales for 2018E” said Morgan Stanley analyst Matthew Harrison.
The biotech is also developing a triple combination therapy for cystic fibrosis. And according to Harrison, this therapy has already produced encouraging late-stage data and “could address a large portion of the CF market.”
Nineteen analysts currently rate the stock a Buy. The average price target for VRTX is $202.95, suggesting possible upside of 17% over the next twelve months. Both Cantor Fitzgerald and Piper Jaffray analysts have set their price targets at $217 – 25% above Thursday’s closing price.
Palo Alto Networks (NYSE: PANW)
Cybersecurity has become a huge issue in the last couple of years after multiple stories about massive security breaches and high-profile hackings.
Palo Alto Networks (NYSE: PANW) is a cybersecurity company that looks set up for success. It is a leader in the industry, especially on the cloud computing front, and is evolving its business to meet the high-tech needs of its clients.
“To garner more effectiveness and efficiency in information security architectures, we believe the key secular trend in security will be the consolidation of spending towards integrated security platforms,” said Morgan Stanley’s Keith Weiss, who rates the stock a Buy and has set his price target for the stock at $266, suggesting possible upside of 41.39% over the next twelve months.
The stock is up 31% over the last year, though it’s still down just over 20% from its highs reached in early September. But this fall is a great buying opportunity as the stock’s valuation has come back down to earth.
At the end of November, Palo Alto released its fiscal Q1 report, and the results were a knockout. Revenue was up 31% to $656 million, and gross profit margin was up 71.8% year-over-year. The company said revenue would continue to grow 24% to 26% year-over-year in the current quarter, which looks like an easy hurdle to clear.
On Monday, Guggenheim initiated coverage of the stock and rated it a Buy. Their twelve-month price target for PANW is $256, or 36% higher than Thursday’s closing price.