Morgan Stanley Is Going For A Song

By Gene G. Marcial

Some pros see Morgan Stanley (MWD ) as the way to play the market -- whether things are on the way up or down. That's because Morgan weathered the 2000-02 downturn "in very good form, with return on equity above 16% in 2002," notes David Katz, investment chief at Matrix Asset Advisors, which owns shares. He says with the capital markets' snapback, Morgan's profits show "meaningful improvement."

Not Much Progress
Yet the stock is still at a big discount to its peers -- trading below historic levels based on price-earnings, price-to-book, and price-to-sales ratios. Now at 56.50, Morgan is 50% off its peak of 110 in 2000. It was trading then at three times book value. Three times today's $26 book value would raise the stock to 78. Katz notes that the stock of rival Merrill Lynch rose 19% from Mar. 31, 2000, to Mar. 31, 2004, while Morgan fell 26%, caused in part by concern over its airplane-leasing business. So for Morgan, Katz argues, there's a lot of potential upside. Morgan's businesses, including investment banking, brokerage, and asset management, have rebounded well, notes John Leo, who co-manages Northern Trust Growth Equity Fund (NOGEX ), which owns shares. He forecasts Morgan will earn $4.20 a share in 2004 and $4.65 in 2005, up from $3.47 in 2003.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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