In Morgan Stanley's "We Are Full of Bull" note published this morning, Adam Parker and his team call for continued strength in U.S. stocks despite risks such as an economic slowdown. Parker says the economy will accelerate in the 2nd and 3rd quarters, taking stocks along with it. For those that are a bit skeptical as stocks are sitting near record highs, he lays out a way to find stocks that are more attractive than others.
A systematic way to think about this might be to look for stocks with reasonably robust long-term earnings growth forecasts that trade at a discount to the market. Hence, the risk of immense multiple contraction is lower (this is the bond guys' principal argument against equities) and the earnings and ostensibly cash flow outlook is above average. The flip side would be to avoid names with low expectations for earnings growth that trade at substantial premiums, as risk of multiple contraction is materially higher and offsetting earnings growth is less likely.
Here are the 10 largest U.S. stocks that are trading at a discount to the broader market and also expected to grow at an above-average rate.
This table shows the 10 largest stocks trading at a premium to the market while growing at a below-average rate.