Morgan Stanley issues list of 45 highest conviction stock picks
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Morgan Stanley issued its list of comprehensive top analyst picks for North America by sector Friday, with those stocks showing a median upside of 32% compared to analysts' base case price targets.
Analysts can choose an Overweight or Underweight stock as their highest conviction choice in their coverage universe, equity strategist Michelle Weaver wrote in a note. But this current list contains only bullish Overweight picks.
The 45 by sector are:
Communication Services (XLC)

Comcast (NASDAQ:CMCSA), upside to price target 31.3% - "At NBCU/Sky, we believe temporary headwinds from macro and COVID-19 have pressured CMCSA multiples, resulting in an attractive risk/reward."
Warner Music Group (WMG), 60.3% - "We expect double digit top line and adjusted EBITDA (MS-defined) growth exceeding 20% from FY21 to FY24."
Match Group (MTCH), 112.2% - "We see a long and growing runway given demographic tailwinds and greater adoption of online dating among the ~620M global online singles ages 18 to 65 (excluding China)."
T-Mobile US (TMUS), 16.5% - "Fixed wireless broadband enabled by the company's enhanced mid-band spectrum portfolio could open up an $80bn+ adjacent TAM. Targeting 7-8mn subscribers by 2025."

Consumer Discretionary (XLY)

Ferrari (NYSE:RACE), 64% - "Ferrari trades at a justified premium to luxury brands, but at a discount to luxury leader, Hermes, albeit with more opportunity to grow organically via: new customers, new segments and geographically in China & Asia-Pac, as well as exhibiting a unique moat with a world renowned brand and a 12+ month customer orderbook."
Amazon.com (AMZN), 43.8% - Cloud adoption hitting an inflection point. Advertising serves as a key area for both further growth potential and profitability flow-through."
Chipotle (CMG), 25.6% - "Ability to raise pricing given high perceived value and a younger, affluent customer is key in an inflationary environment."
Ross Stores (ROST), 31.6% - "Sentiment skews bearish due to outsized low income consumer exposure, but a low guidance bar & positive intraquarter data point to likely 1Q upside."
DraftKings (DKNG), 111.2% - "We forecast legal US sports betting & iGaming to increase from <$1.5B in 2019 to $21B in 2025 as more states legalize and spend per capita rises."

Consumer Staples (XLP) 

Constellation Brands (NYSE:STZ), 18.2% - "Our ~7.5% 3-year STZ corporate organic sales forecast is above the ~4% growth at higher valued beverage peers."
P&G (PG), 8.9% - "While near-term pressures from commodity/freight inflation will impact margins, we believe PG has stronger pricing power than peers, particularly with share gains."
Hostess (TWNK), 7.7% - "M&A is a likely lever for value creation, especially given the recent Voortman acquisition. We see potential for +HSD EPS accretion, but limited by high leverage and competitive M&A landscape."

Energy (XLE)

Valero (NYSE:VLO), 23.9% - "We are broadly constructive on the refining cycle, and VLO is the most 'pure play' large cap within the group. Its asset base is well-managed, and we think VLO will continue to execute and drive substantial earnings growth as the refining cycle advances."
Suncor Energy (SU), 30.7% - Growth "in renewables cash flow is not yet priced in given the historical perception of oil sands companies as bad environmental actors."
Energy Transfer (ET), 35% - "Compelling valuation and several risks likely to improve in 2022 (elevated leverage, concern with commitment to capital discipline, regulatory risk around key projects), we see meaningfully positive risk/reward skew at current levels."

Financials (XLF)

Wells Fargo (NYSE:WFC), 44% - "Excess capital as a % of market cap is higher than median Large Cap Bank, enabling a buyback yield of 13% in 2022 & total cash return of 16%, one of the highest in our coverage."
Raymond James (RJF), 32.7% - "We expect the stock will rerate to 13.5x as the benefit from rising rates comes through."
Charles Schwab (SCHW), 74.9% - "Unique retail servicing offering should outpace peers, catering to the mass affluent at scale via omni channel distribution and low cost should grow faster than peers."
Equitable Holdings (EQH), 55.7% - "The investment thesis for the company revolves around its ability to manage the risk associated with the variable annuity operations while continuing to grow its more profitable group retirement and asset management operations."
S&P Global (SPGI), 20.4% - "S&P Global is our top pick in Business Services. It has a wide moat, strong market share, and high margins."

Healthcare (XLV)

Abbott Labs (ABT), 25.8% - "With double-digit underlying organic growth in 2021 with $6bn+ in COVID-19 Dx revenues, we expect this momentum to continue into '22 with ~$5bn of Dx revenue and with Devices growth driven by key product like Libre and Mitraclip as well as pipeline launches (e.g. CardioMEMS, Amulet)."
Baxter International (BAX), 44% - "Opportunities for additional accretion from cost and revenue synergies have not been baked into our estimates."
Zoetis (ZTS), 46.4% - "Powerful structural tailwinds across animal health should support demand for ZTS's products and services as the industry leader."
Ultragenyx Pharma (RARE), 56% - "The Crysvita launch remains strong with potential upside from greater adoption in adults, families, and Latin America."
CVS (CVS), 22.8% - "We envision CVS as having a pivotal role in reshaping access to health care by leveraging on existing real estate to create local healthcare hubs, leading to additional synergies."
Natera (NTRA), 177.3% - "In the near term, we believe Natera is well positioned to maintain its dominant position in reproductive health with its leading products Panorama."
Thermo Fisher (TMO), 28.6% - "Driven by end market strength and share gains in Biopharma and emerging markets, we expect TMO to meaningfully outpace peers, with diversification and scale embedding best-in-class resilience and flexibility."
Eli Lilly (LLY), 27.6% - "LLY has the most robust new product cycle (and hence growth) outlook in Pharma as the company could launch five new drugs over the next two years (across large end markets such as diabesity, Alzheimerâs disease, cancer and immunology)."

Industrials (XLI)

WillScot (WSC), 29.8% - "The merger of WSC and MINI creates a market leader with dominant share in attractive markets (portable storage and modular space), with VAPS penetration, synergy achievement, D&I margin improvement and cross-sell upside representing idiosyncratic growth in an otherwise cyclical end market."
Eaton (ETN), 22.4% - "We see ETN as a key beneficiary of a supercycle of US electrification investment as the grid evolves from a static, distribution model to a dynamic exchange of electricity and data."
Northrop Grumman (NOC), 17.3% - "Northrop has been the dark horse of the defense primes as the company now has two legs of the modernization of the nuclear triad with the B-21 strategic bomber and Ground Based Strategic Deterrent intercontinental ballistic missile."
TransDigm (TDG), 27.8% - "We are positive on TransDigm, particularly as recovery in global air traffic would be favorable for TransDigm's core profit maker, commercial aerospace aftermarket."
Maxar Technologies (MAXR), 34.4% - "Revenue growth should improve as the company's planned WorldView Legion constellation begins to come online later this year."
Knight-Swift (KNX), 70.7% - "We believe KNX's scale and exposure can make them the biggest beneficiary of structural supply headwinds, where our expectations are above cons."
Southwest Airlines (LUV), 44.3% - "As a largely US domestic medium haul airline, we believe its network is in a sweet spot for a COVID rebound and it has one of the attractive loyalty programs with a loyal customer base."
Driven Brands (DRVN), 51.6% - "The stock screens attractively given the conservatism embedded in our model and the stock's discounted multiple."
Sunrun (RUN), 333.1% - "EV charging partnership with Ford could drive significantly higher margins."

Info Tech (XLK)

Palo Alto Network (PANW), 37.2% - "We believe Palo Alto Networks will continue to differentiate itself from its peers as it proves out a broader TAM around a NextGen Security Platform (and executing to that opportunity)."
Accenture (ACN), 51.5% - "Diversified vertical and geographic mix mitigate risk to revenue growth."
Lam Research (LRCX), 31.2% - We "forecast memory cash flows, which remain high, to drive a soft landing in spending."
Apple (AAPL), 28.9% - "Longer-term investments in augmented reality, payments, health, autos and home can help sustain growth as Apple captures more of its users time and wallet share."
Salesforce.com (CRM), 106.2% - We "see guidance for ~20% FY23 operating margin, despite Slack dilution, as sign of better cost efficiencies and that management is increasingly focused on showing greater profitability."

Materials (XLB)
Corteva (CTVA), 4.7% - "We expect corn prices to come off of their highs in 2H22, but to remain well above $4/bu, which should continue to provide an attractive operating environment versus the challenges of 2017-1H20."
Real Estate (XLRE)

Realty Income (O), 7.2% - "Long track record, including 25+ years of dividend growth, has given the company a unique retail heavy shareholder base that can continue to provide additional support to shares."
SBA Communications (SBAC), 14.5% - "We favor the fundamentals of the tower model - long term contracts, operating leverage, rate escalators, low capital expenditures, high margins, strong credit tenants, and high barriers to entry."

Bearish sentiment is at the highest since 2009.