Morgan Stanley's Wilson screens for stocks as earnings stabilize but data disappoints
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A stronger-than expected earnings season is bolstering belief that an EPS recovery can arrive in the second half of the year, but at the same time leading macro data have slowed, according to Morgan Stanley strategist Mike Wilson.
Late last week, concerns about market breadth were top of mind for the Wall Street sell-side community. Just a small number of stocks were accounting for broader market gains (SP500) (IVV) (VOO).
"While breadth continues to weaken, we favor high operational efficiency and earnings stability factors," Wilson wrote in a note Monday. "The S&P 500 Equal Weighted (RSP) vs. Ca Weighted Index (SPY) ratio has yet to rebound, and the cumulative advance/decline line for the Nasdaq Composite (COMP.IND) has fallen further, continuing to diverge from the index price."
"It's interesting to note that despite the weak breadth, the median stock across the S&P 500 is still quite expensive from a forward P/E standpoint - the median P/E is no higher than the cap weighted multiple," he said. We "provide 2 single stock screens we like - (1) high operational efficiency + MS OW rated, and (2) defensive + high earnings stability + MS OW rated."
For the high operational efficiency and a Morgan Stanley Overweight rating, the stock must be in the top 1,000 by market cap and operational efficiency must be in the top quintile.
The stocks are:

Cigna (CI)
Caci International (CACI)
Cardinal Health (CAH)
Cleveland-Cliffs (CLF)
DTE Energy (DTE)
HF Sinclair (DINO)
Home Depot (HD)
Huntington Bancshares (HBAN)
Lowes (LOW)
McKesson (MCK)
CVS (CVS)
Wells Fargo (WFC)
Exelon (EXC)
Walmart (WMT)
Valero (VLO)
Abbvie (ABBV)
Advanced Drainage Systems (WMS)
Biogen (BIIB)
Paypal (PYPL)
Match Group (MTCH)
Fortive (FTV)
Twilio (TWLO)
Humana (HUM)
CDW (CDW)
Costco (COST)
Cheniere Energy (LNG)
Wyndham Hotels (WH)
Draftkings (DKNG)
Royalty Pharma (RPRX)
Constellation Energy (CEG)
Carmax (KMX)
Yum! Brands (YUM)
Global Payments (GPN)
Elevance Health (NYSE:ELV)
Centene (CNC)
Vistra (VST)
Dominos Pizza (NYSE:DPZ)
Huntsman (HUN)
RBC Bearings (RBC)
Marathon Petroleum (MPC)
Epam Systems (EPAM)

For the defensive with stable earnings and a Morgan Stanley Overweight rating screen the stock must be in the top 1,000 in market cap with earnings stability in the top quintile. Defensive is defined by a Morgan Stanley proprietary model.
The stocks are:

Coca-Cola (KO)
Colgate-Palmolive (CL)
Donaldson (DCI)
Nike (NKE)
UnitedHealth (UNH)
T-Mobile (TMUS)
Gaming and Leisure Properties (GLPI)
Itra-Cellular Therapies (ITCI)
Monster Beverage (MNST)
Humana (HUM)
Agree Realty (ADC)
Realty Income (O)
Blackrock (BLK)
Mondelez (MDLZ)
Elevance Health (ELV)
Centene (CNC)
Molina Healthcare (MOH)
Dominos Pizza (DPZ)
Philip Morris (PM)
Booz Allen (BAH)

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