Morgan Stanley: Zacks’ Bull of the Day Play

With the surging stock market over the past few months, many sectors have been big beneficiaries of the rising tide. However, you can definitely argue that financials have been the top performers, as this space has been buoyed by rising interest rates and a sharp increase in optimism.

Most of this spotlight has been centered on the traditional banking sector, and for good reason. This segment has been on fire thanks to rising rates, and share prices have soared as a result. There are other areas that have been strong performers too though, and these pockets of the financial market could be still worth a closer look, especially when compared to the somewhat overbought banks.

Where to Focus

One area in particular that stands out right now is the investment banking industry. This corner of the financial sector has a top 25% industry rank, and of the 23 stocks in the group only five have ‘sell’ ranks. Instead, there are nearly a dozen—or roughly half of the total—that have ranks of at least ‘buy’.

But where should investors focus of the many top choices here? Well, one that could be especially promising is Morgan Stanley ( (MSFree Report) . This company recently saw a rank upgrade in its rank, and shares might still be a strong choice even with the recent run-up, making this a potential top choice for investors heading into 2017.

Why MS?

The key for MS is its revenue mix, as this shows us why the company might be a strong performer in the months ahead. The company has shifted from a relatively even breakdown among wealth management, fixed income/commodities, equity sales and trading, and then investment banking/investment management, to focus much more heavily on wealth management with a strong showing in the equity sales and trading market too.

This could be a great mix going forward for a couple of reasons. First, a greater focus on asset management and the fees in this department will only benefit from a surge in equity prices, as the swelling AUM numbers will produce greater fees. Additionally, with trading volumes picking back up and volatility in the markets, trading revenues should remain robust in the near term. And fortunately for MS investors, a lower focus on fixed income—which could struggle if the bond slump continues—and commodities—if the strong dollar remains in place—looks to benefit the company too.

Furthermore, Morgan Stanley is a leader in the M&A market, and it has a top presence in the IPO world too. While IPOs were pretty lackluster in 2016, there is hope that this market picks back up in the New Year as several big names could hit the exchanges as they look to make their debuts during a strong market environment. Mergers and acquisitions have been pretty strong in general over the past few years, and with companies flush with cash there is no reason to think this trend will stop either.

Estimates

These factors and the surging market have helped to push analyst opinion of MS higher as of late. In fact, we haven’t seen any fresh estimates go lower for the current quarter or the current year, while five have gone higher for the current quarter and eight have gone higher for the current year.

The magnitude of some of these shifts have been impressive too, as the current year consensus estimate has gone up by 9.2% in the past two months, and we have seen a similar trend in the following year time frame too. With all these positives, it is no surprise that MS was just upgraded to Zacks Rank #1 (Strong Buy), and why we are looking for more outperformance from this name in the future.

MORGAN STANLEY Price and Consensus

MORGAN STANLEY Price and Consensus | MORGAN STANLEY Quote

 

Bottom Line

It has been a strong market over the past month and financials have been a prime beneficiary. But while many investors have been laser focused on the banks, others in the sector could be better picks for the coming year.

That is especially the case for Morgan Stanley, as the company has just the right product mix and strong fundamentals heading into the New Year. So, consider MS—or a number of other players in this highly-ranked industry—as the way to go in the financial sector allocation of your portfolio in 2017.

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