Morgan Stanley’s focus on defensive quality stocks has become more pronounced in recent months, according to its chief U.S. equity strategist, Michael Wilson. Despite the ongoing surge of major U.S. indexes to record highs, the firm continues to emphasize the importance of defensive positioning in investor portfolios. Wilson believes that amidst increasing market volatility, investors are gravitating towards growth as the primary concern, rather than inflation and interest rates. He maintains that an economic soft landing remains his base case scenario, advocating for a defensive skew in portfolios as interest rates decline.
Wilson highlighted a selection of quality and defensive stocks as part of the firm’s investment strategy, focusing on long ideas with overweight ratings from analysts that are also among the top 1,000 companies by market capitalization. Within this screener, he identified three names for the “Fresh Money Buy List”: Public Service Enterprise Group, AbbVie, and Northrop Grumman. These companies are viewed favorably by Morgan Stanley for their quality and defensive attributes.
AbbVie, a pharmaceutical company, is recognized for its efforts to diversify its drug pipeline and deliver superior revenue and earnings growth. Despite facing challenges with declining sales of its primary drug Humira, AbbVie’s strong immunology treatments have contributed to its positive performance in the industry. Analysts have a modest price target for AbbVie shares, indicating limited upside potential, but the stock has already seen significant gains this year. Northrop Grumman, an aerospace and defense company, is lauded for its long-term visibility and stable performance. Analysts at Morgan Stanley believe that the stock is undervalued and have set a price target that implies substantial upside.
Meta Platforms, the parent company of Facebook, is one of the few technology names included in Morgan Stanley’s defensive and quality stock screen. The firm’s analysts recognize Meta’s innovation and growth potential, acknowledging its resilience in the face of market challenges. Despite concerns about the stock’s valuation, Meta is considered well-positioned to navigate the unpredictable economic landscape. In addition to Meta Platforms, Morgan Stanley also favors consumer discretionary companies like Walmart and Lowe’s for their defensive qualities and growth potential.
Morgan Stanley’s preference for defensive quality stocks reflects the current market environment characterized by volatility and uncertainty. By focusing on companies with strong fundamentals and defensive characteristics, the firm aims to provide investors with stability and long-term growth potential. While the investment landscape may continue to evolve, the emphasis on quality and defensive stocks remains a core component of Morgan Stanley’s strategic approach.