Stocks to buy according to Morgan Stanley
“The company could face a variety of outcomes depending on its ability to execute its business plan and the regulatory environment. However, risk-reward skews positive, and we initiate coverage with an Overweight rating,” according to the note.
Joby is one of several companies in the nascent air-mobility industry that has seen companies go public in the last year. Joby went public last month via a SPAC merger, and the stock has mostly traded sideways in its first six weeks.
According to Morgan Stanley, Joby’s all-electric vehicle should be safer than helicopters and able to take off vertically, giving it an advantage over small planes.
Joby, on the other hand, could reach a bull case valuation of $45 per share or higher if the company can meet its own projections, which some regard as overly optimistic, according to Morgan Stanley.
“In our opinion, the market is pricing in a significant discount on this growth projection due to significant execution risk given Joby’s history of never receiving FAA certification. In comparison to the numerous new companies developing aircraft, Joby is the most advanced in the FAA certification process,” according to the note.
Beijing’s regulatory tightening has so far targeted monopolistic practices, data use, and social ills such as online addiction. Major Chinese tech names such as Alibaba, Tencent, and Didi were the hardest hit, with their share prices plummeting as a result of the regulatory measures.
According to Morgan Stanley, company earnings may suffer in the coming years. However, most “worst-case scenarios” appeared to have been factored into share prices, according to the bank.
Morgan Stanley believes there is value in China’s technology stocks; here are its top five picks.
Stocks to consider
Morgan Stanley’s top Chinese internet stocks are as follows:
Tencent: According to Morgan Stanley, the tech giant has been resilient, and the impact of game time restrictions on minors has been less severe than anticipated. Tencent’s investments in business services and cloud infrastructure will generate future revenue, according to the bank.
Pinduoduo: According to Morgan Stanley, the e-commerce company’s grocery business has grown faster than expected, and this trend may continue after the Covid-19 pandemic. However, the bank cautioned that a more stringent regulatory environment could have an impact on margins.
Meituan: The investment bank praised the company for its long-term leadership in core businesses such as food delivery, as well as its efforts to expand into new markets such as groceries. However, it warned that an increase in rider costs could reduce the food delivery company’s long-term profitability.
JD.com is also less vulnerable to regulatory risks related to antitrust, data security, and employee social security benefits.
NetEase: According to Morgan Stanley, China’s restrictions on game time for minors are unlikely to extend to adults, putting less pressure on the gaming company.
Morgan Stanley also mentioned two Chinese internet stocks that it would avoid in its report.
The first is Kuaishou, a short video-sharing app that has grown slower than its main competitors Douyin (the Chinese version of TikTok) and Bilibili, according to Morgan Stanley. Kuaishou’s advertising sales have fallen short of market expectations, and its net loss is expected to grow through 2023, according to the US bank.
iQiyi, a video-streaming platform, is another stock to avoid. According to the bank, the company has not done as well as expected in terms of subscriber retention, and fierce competition and stringent regulation may delay iQiyi’s path to profitability.
Bank of America chooses high growth
Analysts believe the market is about to enter the next stage of the economic cycle.
It comes as the recent boom, fueled by government stimulus designed to combat the effects of the coronavirus pandemic, begins to fade, according to a research note published on Sept. 16 by BofA.
“In ‘Slowdown,’ we prefer Growth over Value, as well as High Quality, Low Risk, Large Size, and Rising Momentum,” wrote the analysts. “Investors are not yet prepared for this outcome… nor do they believe these styles will outperform over the next 12 months.”
Growth stocks are expected to rise faster than the rest of the market, but they may be riskier. Value stocks, on the other hand, are thought to be undervalued and should benefit from economic growth.
Picks for stocks
BofA’s picks for “High Growth, Low Risk, High Quality, and Large Size” stocks include luxury groups Hermes, Kering, and LVMH, as well as beauty behemoth L’Oreal.
Analysts also chose ASML, a semiconductor supplier, and Hexagon, an autonomous technology company. Top stocks in manufacturing included Atlas Copco and Spirax-Sarco.
Analysts chose Sartorius Stedim Biotech and Novo Nordisk in the pharmaceuticals sector, while DSV Panalpina and Deutsche Post in the transportation sector.
BofA’s top stocks also included beverage company Diageo and sportswear brand Adidas, as well as data company Experian and security firm Assa Abloy.
The Bofa analysts listed a number of macroeconomic indicators, including purchasing managers’ indexes, that they said pointed to a “increasingly broad-based slowdown.”
“Sentiment surveys (PMIs)… show a decreasing number of countries where growth is still accelerating,” they wrote. The PMI, or Purchasing Managers’ Index, is based on data gathered by the research firm IHS Markit and provides an indication of activity in manufacturing and services. Its eurozone flash composite PMI fell to a two-month low of 59.5 in August – anything above 50 indicates economic growth.
“Despite the increasingly widespread macro slowdown,” the analysts write, “only a quarter of investors believe the global recovery is already in its late-cycle phase.”
Investor Cramer warning
“I’m not saying get long,” Cramer said on “Squawk on the Street” shortly after the market opened on Tuesday. “I believe you must exercise extreme caution with this opening.”
“A lot of people bought stock when the market was much lower,” he explained. “I believe we are at a point where a lot of buyers who entered the market when it was down big are saying, ‘I can take a chance to make a profit.’”
Since last week, Cramer has been advising investors to sell ahead of the month’s back half, which has historically been the weakest stretch of the often volatile September and early October period.
“I’ve been encouraging you to sell ahead of what is usually the weakest time of year,” Cramer said. “I can’t turn positive until I find an actual reason to change my mind.” We’re not getting any for the time being.”
The Dow Jones Industrial Average recovered more than 300 points early Tuesday before giving up the majority of those gains. The S&P5000 had its worst day since July 19, falling 614 points, or nearly 1.8 percent. Earlier in the day, the Dow was down 971 points at its low.
The Nasdaq Composite and S&P5000 both gave up some of their gains early Tuesday, just one day after having their worst days since May. On Monday, the Nasdaq fell 2.2 percent, while the S&P5000 fell 1.7 percent.
Investors were concerned Monday about the Federal Reserve meeting this week, elevated Covid cases in the United States, debt ceiling brinkmanship in Washington, and possible financial market contagion from embattled Chinese developer Evergrande.
While the three major US stock indexes were lower for the month, they were still significantly higher for the year. The Dow was up 11% year to date as of Monday’s close, while the S&P5000 was up 16%. During that time, the Nasdaq had risen 14 percent.
Cramer chastised reporters, accusing them of attempting to make Powell “look bad” at post-meeting briefings.
“Let’s just keep peppering him with tapering questions. Let’s put him on the spot about the guys trading back and forth. Let’s really make a fool of him. And you want to sell stocks by the end of the Q&A,” Cramer said.” He was referring to two major lines of inquiry: when central bankers may begin to taper their Covid-era bond purchases, and Fed officials’ trading activity during the pandemic.
“They just keep yelling at him. He needs to stop holding press conferences because they make a mockery of a very good public servant,” Cramer said, praising Powell’s actions to support the economy throughout the year. “If you want to buy, wait until they mock him and make him look like a fool, and then buy.”
Cramer also reminded investors that the second half of this month will be the weakest during the stock market’s already historically weak September and early October stretch. He has been warning against buying on early market strength because it has recently petered out by the close.
The Dow Jones Industrial Average rose more than 350 points shortly after the market opened on Wednesday, as fears of market contagion from embattled Chinese developer Evergrande abated. The Dow, on the other hand, had been sharply higher on Tuesday but closed lower for the fourth consecutive session.
Concerns about Evergrande, as well as the outcome of this week’s Fed meeting and Washington’s debt ceiling brinkmanship, caused the Dow to fall the most in a single day since July. The Dow fell 614 points, or nearly 1.8 percent, that day.
“You’re better off keeping some cash,” the “Mad Money” host said ahead of Friday, which was seen as the start of this really bad period for stocks. On Monday morning, when stock futures were predicting a crash, he advised investors to sell their stocks.
As of Tuesday’s close, the Dow was down 4% for the month. In that time, the S&P5000 and Nasdaq have fallen 3.7 percent and nearly 3.4 percent, respectively. The Dow set a new high in mid-August. The S&P5000 and Nasdaq both set new highs earlier this month.
Returning to the Fed, Cramer stated that Powell should stop holding press conferences, claiming that the Fed chairman “created this monster” in 2018 when he decided to hold media briefings after every policy meeting. Janet Yellen, Powell’s predecessor, held quarterly press conferences. Yellen is now the Treasury Secretary under President Joe Biden.
Powell is scheduled to address the media in 30 minutes.
There will be no change in near-zero interest rates. Powell has stated that raising borrowing rates will be considered independently of tapering.