Best stocks to buy now according to Morgan Stanley
Many of Europe’s most innovative companies, according to the analysts and strategists led by Edward Stanley, play a critical role in so-called “innovation stacks” that underpin projects such as NASA’s space helicopter.
“We believe there are six companies whose world-class innovation stacks provide them with clear long-term advantages over regional and global peers,” they wrote in a June 17 note.
The following are the stocks, all of which are rated overweight by the bank:
ASML — With a market capitalization of approximately 240 billion euros ($286 billion), Dutch firm ASML is one of Europe’s most valuable technology firms. The company manufactures lithography equipment, which combines cutting-edge hardware and software to control the chip manufacturing process down to the nanometer level. “ASML’s lithography tools are critical enablers for the continued shrinkage of integrated circuits,” the analysts wrote. ASML currently controls approximately 90% of the global lithography market, and Morgan Stanley believes that demand for its equipment will increase as chips become smaller. The bank’s share price target is 590 euros.
Dassault Systemes — According to Morgan Stanley, French industrial software maker Dassault Systems is in the “early stages of a major product cycle” and is about to launch new products in new industries. Following its acquisition of Medidata, the company, which has a market cap of around 50 billion euros, is “well positioned” to address the digitalization of the manufacturing and healthcare industries, according to the analysts. “We believe management’s long-term/visionary approach to positioning the company for the future through internal R&D and strategic M&A solidifies its position as an innovation leader,” they added. Morgan Stanley has set a target price of 187 euros for the shares.
Evolution Gaming — Founded in 2006 in Sweden, Evolution is a casino game developer specializing in the “live” vertical. The company creates, manufactures, and licenses games, which are then hosted on the websites of its customers. “As the dominant games supplier in the fastest growing vertical in global gambling, Evolution is well positioned to benefit from the structural shift of casino to online,” the analysts wrote, adding that the company has a “strong innovation culture.” “We believe Evolution’s game innovation will continue to broaden its addressable market and maintain a healthy competitive gap, resulting in high revenue growth sustained for a longer period of time,” they added. Its shares are currently trading at around 1,477 Swedish Krona, with Morgan Stanley setting a target price of 1750 Swedish Krona.
Ocado — The U.K. ecommerce company Ocado operates a completely online grocery retail operation. According to the company, it processed 325,000 orders per week in 2019 and has 795,000 active customers. According to the analysts, “Ocado is the company in the online grocery space with the most comprehensive and differentiated solutions for its customers.” “Online grocery is the fastest growing channel within grocery, and given how underserved it is, this is likely to continue in the coming years.” They lauded the company’s investment in grocery-finding and packing robots. Analysts have set a target price of £28.13, with the stock trading at £20.19 as markets closed on Monday.
Shop Apotheke is a Dutch company. Shop Apotheke makes money by selling over-the-counter medications, cosmetics, and personal care items online. Morgan Stanley anticipates that the company will benefit from an aging population as well as a channel shift. ”We estimate the Western Europe pharmacy market is currently worth €260 billion, with prescription medication (Rx) accounting for 80% of the total,” the analysts wrote. “However, according to our estimates, online Rx penetration remains very low. However, regulatory changes are expected to accelerate the channel shift to online, with Germany at the forefront of this opportunity as eprescriptions (eRx) become mandatory there in January 2022.” Morgan Stanley has set a target price of 230 euros for the shares. On Monday, the stock closed at 163 euros.
Teleperformance — According to Morgan Stanley analysts, Teleperformance is the global leader in outsourced customer service. “Teleperformance has long been a growth story,” they said, adding that it has a healthy mix of new and existing customers from a variety of end-markets. “Management’s ability to anticipate market changes means Teleperformance is a leader in fields such as EV charging customer service and e-commerce relationships, allowing the company to consistently outpace peers,” they said. They set a target price of 370 euros for the stock, which is higher than Monday’s close of 346 euros.
Capital is pouring into European start-ups, and there are now more than 100 companies in Europe valued at more than $1 billion. However, the continent has yet to produce a tech behemoth on the scale of Google or Apple in the United States, Alibaba in China, or Samsung in South Korea.
“More private equity money is being channeled into European start-ups than ever before,” Morgan Stanley analysts wrote. “We believe that, while the US and China are ostensibly more ‘obvious’ thematic investing regions, European investors can benefit from the same themes at markedly lower valuations.”
Best stocks to buy now according to Citigroup
Citigroup acknowledged the many concerns that are currently circling the market, such as inflation, interest rates, and fiscal policy. However, the bank believes that there are still opportunities for investors to pursue.
“We maintain a cautious view over the next several months, especially given the possibility of four different catalysts (tapering discussion, inflation, margin pressures, and taxation) converging at the same time,” Citigroup chief U.S. equity strategist Tobias Levkovich told clients. “Sentiment remains buoyant, valuation is unappealing, and the Street already anticipates strong profit trends.”
Citi continues to like the value rotation in general, but believes there may be a tipping point in the second half.
“Higher inflation expectations, combined with improved economic prospects, clearly benefit cyclicals, while rising bond yields benefit financials,” Levkovich said.
Citi analysts maintain a running stock focus list that highlights the firm’s analysts’ most confident near-term alpha opportunities. Citi analysts select stocks with non-consensus upside due to catalysts.
Take a look at this list.
Citigroup’s top pick in the home and personal care category is the cosmetics company Coty. The Wall Street firm expressed satisfaction with the company’s transformation efforts.
Citi analyst Wendy Nicholson told clients, “We have strong confidence in management’s ability to lead the company to consistent profitable growth.”
Citigroup singled out State Street among financial stocks. While a steeper yield curve clearly benefits banks, “it does take a while for the repricing benefit to flow through, so we tend to gravitate to those banks that will be bigger beneficiaries to a higher 10-year,” analyst Keith Horowitz told clients.
Despite a 15% gain so far this year, Horowitz said it likes trust banks like State Street.
Citigroup believes health-care behemoth Cigna is undervalued, paving the way for the stock to thrive in the second half.
Citi analyst Ralph Giacobbe told clients that Cigna’s “suite of services, cash flow profile ($50B between 2021-2025), and execution should support its 10% -13% growth target.” “We continue to see room for upside in the near term as cost trends remain manageable.”
Citi also suggests capitalizing on the e-commerce boom by investing in industrial behemoth Prologis.
According to Citi analyst Emmanuel Korchman, the warehouse operator “should benefit from continued demand and growth within the logistics and distribution space driven by ecommerce expansion as well as supply chain transformation across industries.”
According to Citi, General Motors is another top pick for the second half of 2021. Because of its push into trucks, electric vehicles, and expanding total addressable market, the automaker has a clear path to its $100 per share price target.
Citigroup also has high expectations for Valero Energy, Fiserv, Dell Technologies, and Vertex Pharmaceuticals in the second half.