Morgan Stanley shares 14 safehaven stocks with highly-stable and quality earnings to bet on as investors continue to ignore a sharp pullback in earnings hurtling toward the market
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Morgan Stanley's Mike Wilson says investors are wrongly betting on a Fed pivot in 2023.
As a result, earnings will be worse than anticipated, Wilson believes.
Wilson said defensive areas of the market are the best place to be right now.
Morgan Stanley's CIO and Chief US Equity Strategist Mike Wilson is calling for an earnings recession to sweep across US corporations in the months ahead as the Federal Reserve keeps interest rates elevated and lending standards tighten.
That's bad news for stocks, says Wilson, who is warning that the S&P 500 could fall 29% from current levels as investors anticipate a softer landing than he envisions.
Morgan Stanley
"We still expect a meaningful earnings recession this year (-16%Y decline) that has yet to be priced," Wilson said in the bank's recent mid-year outlook note. "This out-of-consensus earnings path is supported by our models and our view that policy will become more accommodative in 2024, not 2023."
But in this environment, there are areas of the market that are better to hide in than others, he said. For example, Wilson recommends investors stay in defensive sectors, like healthcare, consumer staples, and utilities. Defensive stocks tend to perform better than their cyclical counterparts in down economic environments. Wilson said his recommendation to stay defensive doesn't necessarily mean that the theme has upside, but that it will likely perform better than cyclical areas.
Another way to stay defensive, Wilson said, is to look to companies with stable and quality earnings. In the note, Wilson's team compiled a list of stocks they think fit that bill. It includes firms that are among the top 1000 US stocks by market cap; in the top-two quintiles of earnings stability; in the top-two quintiles of earnings quality; and are rated overweight by a Morgan Stanley research analyst.
The stocks are listed below in alphabetical order of their market sector.
