Should Morgan Stanley Be In Your Portfolio?

The Cheat Sheet

With shares of Morgan Stanley (NYSE:MS) trading around $22 after Morgan Stanley’s earnings, is MS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework: [More from WallStCheatSheet: Carbohydrate Cheat Sheet: 5 Things You Need to Know]

T = Trends for a Stock’s Movement

Morgan Stanley is a global financial services company that, through its subsidiaries and affiliates, provides its products and services to a range of clients and customers, including corporations, governments, financial institutions and individuals. The company operates in three segments: Institutional Securities, Global Wealth Management Group, and Asset Management. Morgan Stanley provides financial advisory and capital-raising services; equity, fixed income, and alternative investments; and merchant banking services. The company participates in an industry that powers most other types of businesses around the world. As economies continue to grow, Morgan Stanley is at the stem of that growth, providing the products and services required to form solid operating bases well into the future. [More from WallStCheatSheet: 11 Hot Winter Boots Combining Form and Function]

T = Technicals on the Stock Chart are Strong

Morgan Stanley stock has yet to recover from the Financial Crisis meltdown it saw in 2008. The stock has struggled to make any significant progress, which has kept it in a downtrend. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Morgan Stanley is trading around its key averages which signal neutral price action in the near-term.

View photo

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MS

(Source:Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Morgan Stanley options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Morgan Stanley Options

30.21%

0%

0%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bearish over the next two months.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Morgan Stanley’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Morgan Stanley look like? More importantly, how did the markets like these numbers after Morgan Stanley’s earnings call?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

916.67%

294.20%

-147.83%

176.32%

Revenue Growth (Y-O-Y)

17.64%

22.85%

-46.09%

-24.48%

Earnings Reaction

-5.4%

7.85%

-3.78%

-5.28%

Morgan Stanley has seen increasing earnings and revenue figures for most of the last four quarters. From these figures, the markets have not been very pleased with Morgan Stanley’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Morgan Stanley stock done relative to its peers, UBS (NYSE:UBS), Charles Schwab (NYSE:SCHW), TD Ameritrade (NYSE:AMTD), and sector?

Morgan Stanley

UBS

Charles Schwab

TD Ameritrade

Sector

Year-to-Date Return

16%

13.21%

18.28%

17.37%

16.04%

Morgan Stanley has been an average relative performer, year-to-date.

Conclusion

Morgan Stanley provides essential financial products and services to a wide array of businesses operating in various sectors worldwide. The stock has yet to recover from the heavy selling experienced during the Financial Crisis. Earnings and revenue figures have improved a bit, but investors have clearly been expecting more from the company. Relative to its strong peers and sector, Morgan Stanley has been an average performer. WAIT AND SEE what Morgan Stanley does in coming months.

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