Morgan Stanley’s preference for defensive blue chip stocks has grown even more since June, even as major U.S. stock indexes continue to hit new highs. “Following the significant increase in volatility over the past two weeks, markets (and investors) are looking for direction. We maintain our view that growth, rather than inflation or interest rates, is now the top concern for equity investors,” Michael Wilson, the firm’s chief U.S. equity strategist, wrote in a client note on Monday. He added that a soft landing for the economy remains his base case. “We still believe it makes sense to tilt portfolios more defensively as interest rates fall further,” he said. Wilson highlighted a stock screen of blue chip and defensive names that are long stocks that have overweight ratings from the firm’s analysts and are also among the top 1,000 companies by market capitalization. From this screener, the analyst added three stocks to his “Fresh Money Buy List”: Public Service Enterprises Group, AbbVie and Northrop Grumman. Let’s take a look at some of Morgan Stanley’s favorite stocks. AbbVie was picked as one of the firm’s top quality defensive stocks. The pharmaceutical company “is diversifying its drug pipeline, which should enable it to deliver above-industry average revenue and EPS growth,” Wilson wrote in a note, adding that the firm’s research suggests that biotech, more broadly, will outperform after the first interest rate cut by the Federal Reserve. AbbVie has seen sales of its once top-selling drug, Humira, plummet due to competition from cheaper biosimilars, but it still has several key immunotherapy drugs with strong sales growth. Analysts surveyed by FactSet suggest a target price for AbbVie shares of just 3.2% up from the company’s most recent closing price. The stock has risen about 23% this year. Aerospace and defense company Northrop Grumman is a firm favorite due to its long-term outlook and stability. Morgan Stanley analyst Christine Liwag deemed the stock “undervalued” and reiterated her overweight rating on the stock on Friday, pointing to the stock’s attractive free cash flow growth profile among its peers and the durability of its product portfolio tied to the U.S. nuclear triad. Her $592 price target is significantly more bullish than the average price target of analysts from FactSet, implying a 19.7% upside for the stock. Facebook parent Meta Platforms is one of the few tech names listed on the firm’s screener. Morgan Stanley analyst Brian Nowak wrote in an Aug. 6 note that Meta’s “micro-level innovation and growth drivers will likely enable it to navigate and grow better than others in the consumer internet space,” but the stock’s multiple is not as compressed as its peers, raising risk if the consumer environment slows further. Still, the firm believes Meta is best positioned among mega-cap tech to weather an uncertain macroeconomic landscape. The company’s advances in artificial intelligence have boosted engagement and monetizable time on the platform.Meta shares have risen more than 45% this year, and investors have maintained a bullish outlook on the stock after the company beat second-quarter profit expectations and provided an upbeat outlook.Other defensive, high-quality stocks that Morgan Stanley likes include consumer goods companies Walmart and Lowe’s.
Morgan Stanley says buying these high-quality defensive stocks is the best option for investors right now.
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