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MORGAN STANLEY: Buy these 22 stocks that are slashing costs as sales take a hit from COVID-19 — putting them in position to smash the market as the economic recovery continues

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Morgan Stanley Chief US Equity Strategist Mike Wilson has consistently taken a relatively bullish stance on how the US economy, and in turn equity markets, will perform over the next couple of years as the country tries to shirk its COVID-19 outbreak.

In his most recent note, he stayed with this positive outlook, saying he expects strong 2021 earnings. He flagged two key catalysts that he said should make this view a reality: government stimulus that supports consumer demand and cost-cutting measures that help businesses.

“We think that a return of topline growth and a material reduction in the cost base will lead to operating leverage flow through that such that peak profits will appear again before peak sales,” Wilson said. “We’ve seen margin upside drive earnings growth coming out of prior recessions and expect the same this time, with potential further upside from massive fiscal stimulus.”

To that end, Wilson and his team conducted an analysis of second-quarter earnings statements by looking for firms that could benefit from strong earnings in 2021 as a result of better operating leverage.

They screened for companies that met the following criteria:

  • Year-over-year sales decline of greater than 5%.
  • Year-over-year decline in cost of goods sold greater than a firm’s sales decline.
  • Selling, general, and administrative expenses as a percentage of sales in the top half of the market.
  • Year-over-year decline in selling, general, and administrative expense that is more favorable than at least half the market.
  • A share price that has dropped at least 5% from its 52-week high.
  • A credit rating above C.
  • A market cap of at least $1 billion.

Below are the 22 stocks that met the above criteria and are poised to rise in the year ahead, according to Wilson.

SEE ALSO: MORGAN STANLEY: A historic shift is taking place under the market’s surface. Here are 5 reasons it could redefine the investing landscape as we know it.

1. AMC Networks

Market cap: $1.3 billion

Year-over-year sales cut: -16.3%

Year-over-year cost of goods sold cut: -25.1%

Year-over-year selling, general, and administrative expenses cut: -10.5%

Source: Morgan Stanley

2. Comcast Corp.

Market cap: $198.2 billion

Y/Y sales cut: -11.7%

Y/Y COGS cut: -12.6%

Y/Y SG&A cut: -9.9%

Source: Morgan Stanley

3. World Wrestling Entertainment

Market cap: $3.6 billion

Y/Y sales cut: -16.9%

Y/Y COGS cut: -37.%

Y/Y SG&A cut: -18.6%

Source: Morgan Stanley

4. Carter’s

Market cap: $3.6 billion

Y/Y sales cut: -$29.9%

Y/Y COGS cut: -32.1%

Y/Y SG&A cut: -21.3%

Source: Morgan Stanley

5. Mattel

Market cap: $4.1 billion

Y/Y sales cut: -14.9%

Y/Y COGS cut: -19.8%

Y/Y SG&A cut: -6.1%

Source: Morgan Stanley

6. Steven Madden

Market cap: $1.9 billion

Y/Y sales cut: -67.9%

Y/Y COGS cut: -68%

Y/Y SG&A cut: -33.8%

Source: Morgan Stanley

7. Under Armour

Market cap: $4.9 billion

Y/Y sales cut: -40.5%

Y/Y COGS cut: -43.6%

Y/Y SG&A cut: -15.2%

Source: Morgan Stanley

8. Wolverine World Wide

Market cap: $2 billion

Y/Y sales cut: -38.6%

Y/Y COGS cut: -42.5%

Y/Y SG&A cut: -14.9%

Source: Morgan Stanley

9. Genuine Parts Co.

Market cap: $13.6 billion

Y/Y sales cut: -14.2%

Y/Y COGS cut: -14.4%

Y/Y SG&A cut: -14.1%

Source: Morgan Stanley

10. Antero Midstream

Market cap: $3.3 billion

Y/Y sales cut: -7.1%

Y/Y COGS cut: -13%

Y/Y SG&A cut: -57%

Source: Morgan Stanley

11. LivaNova

Market cap: $2.4 billion

Y/Y sales cut: -34.3%

Y/Y COGS cut: -38.7%

Y/Y SG&A cut: -31.9%

Source: Morgan Stanley

12. Acuity Brands

Market cap: $4.3 billion

Y/Y sales cut: -18.1%

Y/Y COGS cut: -18.5%

Y/Y SG&A cut: -12.5%

Source: Morgan Stanley

13. Cubic Corp.

Market cap: $1.5 billion

Y/Y sales cut: -8.4%

Y/Y COGS cut: -10.6%

Y/Y SG&A cut: -21.4%

Source: Morgan Stanley

14. Dover Corp.

Market cap: $16.1 billion

Y/Y sales cut: -17.2%

Y/Y COGS cut: -17.3%

Y/Y SG&A cut: -7.7%

Source: Morgan Stanley

15. John Bean Technologies Corp.

Market cap: $3.3 billion

Y/Y sales cut: -17.2%

Y/Y COGS cut: -17.8%

Y/Y SG&A cut: -20.2%

Source: Morgan Stanley

16. SPX Flow

Market cap: $1.9 billion

Y/Y sales cut: -20.1%

Y/Y COGS cut: -23.3%

Y/Y SG&A cut: -5.6%

Source: Morgan Stanley

17. Tennant Co.

Market cap: $1.3 billion

Y/Y sales cut: -28.6%

Y/Y COGS cut: -31%

Y/Y SG&A cut: -29.8%

Source: Morgan Stanley

18. NortonLifeLock

Market cap: $13.6 billion

Y/Y sales cut: -5.5%

Y/Y COGS cut: -45.5%

Y/Y SG&A cut: -14.1%

Source: Morgan Stanley

19. GCP

Market cap: $2 billion

Y/Y sales cut: -25.5%

Y/Y COGS cut: -27.1%

Y/Y SG&A cut: -8.7%

Source: Morgan Stanley

20. PPG Industries

Market cap: $28 billion

Y/Y sales cut: -25.1%

Y/Y COGS cut: -25.3%

Y/Y SG&A cut: -18.5%

Source: Morgan Stanley

21. Iron Mountain

Market cap: $8.5 billion

Y/Y sales cut: -7.9%

Y/Y COGS cut: -9.2%

Y/Y SG&A cut: -51.4%

Source: Morgan Stanley

22. UGI Corp.

Market cap: $7.2 billion

Y/Y sales cut: -12%

Y/Y COGS cut: -50.5%

Y/Y SG&A cut: -9.3%

Source: Morgan Stanley

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