Morgan Stanley: Buy these 9 stocks for safe, high-quality earnings heading into a volatile 2024

  • As 2023 winds down, 2024 holds plenty of problems for investors in the near-term.
  • But in the long-run, Morgan Stanley’s Michael Wilson is bullish on stocks.
  • He says an earnings recovery will kick off next year, and these 9 stocks will benefit.

As predictions for how the stock market will perform in 2024 continue to pour in, it’s clear that optimism is widespread on Wall Street.

True, persistently high inflation, geopolitical conflict, and domestic economic uncertainty — particularly among retailers approaching the crucial holiday shopping season — do not bode well for the market in the short term.

Morgan Stanley Chief Investment Officer Michael Wilson is well aware of the market’s numerous issues. In a recent client note, he stated that the “near-term backdrop remains challenged.”

“Earnings revisions breadth, which typically leads consensus estimates, has rolled over once again and is at the lowest level since March this year,” he went on to say. “Underpinning this trend is more cautious corporate commentary overall that’s once again centered on the macro.”

Restrictive monetary policy in the form of high interest rates, combined with a narrow market breadth, indicate that there will be speed bumps ahead. However, Wilson and his peers believe that the economy will continue to grow next year, spurring earnings growth and pushing stocks higher.

Wilson believes that margin expansion will drive earnings growth in the coming year. Companies that have been caught off guard by high inflation and rising manufacturing costs in recent years have had time to strengthen their balance sheets, offsetting lower sales with higher prices and bolstering margins.

“History shows margin pressure is the main driver of earnings recessions as it takes time for companies to right size expenses in line with slowing top line growth,” Wilson wrote in a paper. “Once that happens, however, and demand begins to recover, positive operating leverage resumes and drives margin expansion and earnings growth.”

Wilson anticipates a 7% increase in earnings across the market next year, followed by a 16% increase in 2025. And he has some suggestions for investors who want to profit from this trend.

Wilson scoured the top 1,000 stocks by market capitalization for companies with strong earnings that will enable them to capitalize on an earnings recovery in 2024. He narrowed his search to stocks in the top 20% of earnings stability, stocks in the top 20% of earnings quality, and stocks that Morgan Stanley analysts rated overweight.

The nine stocks listed below are the results. Each company is represented by its ticker, sector, industry group, market capitalization, and last closing price.

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