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MORGAN STANLEY: Buy these 25 highly reliable stocks set to perform well in any market environment as rising prices threaten to crush profit margins

Summary List PlacementAfter the stock market bottomed last March, Morgan Stanley's Mike Wilson began to advocate for investors to step into cyclical stocks in anticipation of an economic recovery. Those who took that advice would have benefitted handsomely, especially towards the end of 2020 and the beginning of 2021, when...

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Summary List Placement

After the stock market bottomed last March, Morgan Stanley’s Mike Wilson began to advocate for investors to step into cyclical stocks in anticipation of an economic recovery.

Those who took that advice would have benefitted handsomely, especially towards the end of 2020 and the beginning of 2021, when pharmaceuticals discovered vaccines and Democrats took control of the White House and Senate.

Now, a year later, Wilson is starting to call an end to this rotation and to early cycle plays. From the market’s point of view, we’re beginning to enter the mid-cycle period of the economic rebound, he said in a Monday note to clients, meaning steadier but slower growth. This is when investors ought to look to more reliable stocks with strong earnings, he said.

This is because prices for firms are getting set to surge as supply shortages begin to appear, Wilson said, which could mean reduced demand and profit margins.

“We continue to hear anecdotal evidence that costs are rising for many key inputs for companies — materials, logistics, labor, etc. Last week’s Manufacturing PMIs shed further light on how acute these cost pressures may become over the next few months,” Wilson wrote.

“While we may be a little early, we believe now is the time to shift one’s portfolio up the quality curve while liquidity remains flush and before these supply/margin issues become more obvious,” he added. 

The below chart shows the drop in manufacturing Wilson expects to come in the next 12 months as prices turn a corner upwards. The extreme dichotomy between the manufacturing prices and manufacturing output resembles prior mid-cycle instances, which are circled in red.

Screen Shot 2021 04 05 at 2.51.50 PM

To find the best opportunities in individual stocks while considering these dynamics, Wilson and his team screened for high quality, defensive names whose earnings revisions have been better than the average for the Russell 1000 index in the last month. 

Twenty-five met their criteria, and are listed below by their market sectors.

1. Facebook

Ticker: FB

Sector: Communication Services

Market Cap: $850 billion

Source: Morgan Stanley

2. Kroger

Ticker: KR

Sector: Consumer Staples

Market Cap: $27 billion

Source: Morgan Stanley

3. Campbell Soup

Ticker: CPB

Sector: Consumer Staples

Market Cap: $15 billion

Source: Morgan Stanley

4. Flowers Foods

Ticker: FLO

Sector: Consumer Staples

Market Cap: $5 billion

Source: Morgan Stanley

5. Hormel Foods

Ticker: HRL

Sector: Consumer Staples

Market Cap: $25 billion

Source: Morgan Stanley

6. Monster Beverage

Ticker: MNST

Sector: Consumer Staples

Market Cap: $48 billion

Source: Morgan Stanley

7. Smucker

Ticker: SJM

Sector: Consumer Staples

Market Cap: $13 billion

Source: Morgan Stanley

8. Kimberly-Clark

Ticker: KMB

Sector: Consumer Staples

Market Cap: $46 billion

Source: Morgan Stanley

9. AmericsourceBergen

Ticker: ABC

Sector: Healthcare

Market Cap: $23 billion

Source: Morgan Stanley

10. Anthem

Ticker: ANTM

Sector: Healthcare

Market Cap: $86 billion

Source: Morgan Stanley

11. Baxter International

Ticker: BAX

Sector: Healthcare

Market Cap:  $42 billion

Source: Morgan Stanley

12. Boston Scientific

Ticker: BSX

Sector: Healthcare

Market Cap: $54 billion

Source: Morgan Stanley

13. Centene

Ticker: CNC

Sector: Healthcare

Market Cap: $36 billion

Source: Morgan Stanley

14. Dentsply Sirona

Ticker: XRAY

Sector: Healthcare

Market Cap: $13 billion

Source: Morgan Stanley

15. Globus Medical

Ticker: GMED

Sector: Healthcare

Market Cap: $6 billion

Source: Morgan Stanley

16. Humana

Ticker: HUM

Sector: Healthcare

Market Cap: $53 billion

Source: Morgan Stanley

17. Intuitive Surgical

Ticker: ISRG

Sector: Healthcare

Market Cap: $88 billion

Source: Morgan Stanley

18. Quest Diagnostics

Ticker: DGX

Sector: Healthcare

Market Cap: $17 billion

Source: Morgan Stanley

19. PPD

Ticker: PPD

Sector: Healthcare

Market Cap: $13 billion

Source: Morgan Stanley

20. PRA Health Sciences

Ticker: PRAH

Sector: Healthcare

Market Cap: $10 billion

Source: Morgan Stanley

21. Grainger

Ticker: GWW

Sector: Industrials

Market Cap: $21 billion

Source: Morgan Stanley

22. Howmet Aerospace

Ticker: HWM

Sector: Industrials

Market Cap: $13 billion

Source: Morgan Stanley

23. Watsco

Ticker: WSO

Sector: Industrials

Market Cap: $10 billion

Source: Morgan Stanley

24. Entergy

Ticker: ETR

Sector: Utilities

Market Cap: $20 billion

Source: Morgan Stanley

25. Nextera Energy

Ticker: NEE

Sector: Utilities

Market Cap: $148 billion

Source: Morgan Stanley

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