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Morgan Stanley Picks 2 Stocks to Buy (and 1 to Avoid)

TipRanks
·6 mins read

Since peaking in early September, the main indexes have lost between 5% and 10% in the last three weeks, in a series of roller coaster trading sessions. It’s a situation made for confusion, forcing investors to wonder if the summer’s bull run is over, or if this is just a correction before the good times start again.

Investment banking giant Morgan Stanley has been scouring the markets, doing the intensive research that this month’s volatility suggests is necessary. And the bank’s analysts have found the stocks that investors should and should not buy into. Their recommendations work to make sense of a turbulent time in the markets.

With this in mind, we’ve delved into two stocks that the firm predicts will show powerful double-digit growth. And for contrast, we’ve included one that Morgan Stanley says to avoid. Using TipRanks’ Stock Comparison tool, we were able to evaluate these 3 stocks alongside each other to get a sense of what the analyst community has to say.

Aptiv PLC (APTV)

First on the list is Aptiv, the modern incarnation of long-time auto-parts supplier Delphi. The company spun off the powertrain segment three years ago, changed its name to Aptiv, and has focused on the intersection of high-tech and the automotive sector. The company’s projects include advanced software, networking, and computing platforms to improve the safety, efficiency, and environmental soundness of modern vehicles.

Business shutdowns, travel restrictions, supply disruptions, social lockdowns – all these wrought havoc on Aptiv’s 1H20 business. The company saw revenues slip and EPS turn negative in Q2. But, Aptiv inhabits a generally positive niche – cleaner cars, with an emphasis on reduced CO2 emissions and electric power, along with networked vehicles, are widely considered the wave of the future – and has been able to leverage that to weather the COVID pandemic storm. Looking forward, the company expects to see Q3 earnings return to positive numbers.

Analyst Adam Jonas wrote the review of this stock for Morgan Stanley, and he sees a bright future for Aptiv.

“Coming out of the COVID era, we believe Aptiv’s portfolio is on the verge of a transformation that will alter the stock’s narrative, driving a multiple re-rating. Aptiv has three underappreciated top-line compounding business units,” Jonas opined. The analyst goes on to note that Active Safety, Mobility & Services, and Power & Signal Battery-powered Electric Vehicles are all on the cutting edge of the automotive world, and the growth technologies in the sector. Aptiv has a leading position in all three.

"Post COVID-19, OEMs are accelerating electrification and autonomy. Aptiv has a leading (and potentially dominating) position in electric vehicle architecture and active safety with a path to recurring software revenue," the analyst concluded.

In line with this outlook, Jonas describes APTV as his ‘Top Pick,’ and sets a $150 price target indicating confidence in a robust 77% one-year upside for the stock. He rates APTV as Overweight (i.e. Buy) (To watch Jonas’ track record, click here)

The Street agrees that APTV is a buying proposition, and the analyst consensus rating here is a Strong Buy. That rating is a based on 8 reviews, including 6 Buys and 2 Holds. The stock is currently selling for $84.51, and the average price target, at $100, suggests it has an 18% upside potential. (See APTV stock analysis on TipRanks)

Match Group (MTCH)

Next on the list is Match Group, a Texas-based internet company in the online dating realm. Match Group owns and operates numerous online dating sites, including big names like Tinder and OkCupid, as well as smaller names like Hinge and Ship. The sites have a global reach, with 9.3 million subscribers; of that number, more than 4.5 million are in North America.

So far, 2020 has been good for Match Group; EPS for the second quarter hit 51 cents, beating the forecast by 4%, and the company’s shares are up 50%.

Morgan Stanley’s Lauren Cassel sees plenty of potential in Match Group – especially in the company’s smaller brand, Hinge.

“We believe the Street underappreciates MTCH’s emerging brands, and our deep dive quantifies the increasingly large opportunity, particularly for Hinge. [...] Hinge is MTCH’s next major revenue and earnings growth driver, growing from less the 500k subscribers today to more than 8M estimated subscribers over the next decade," Cassel noted. "MTCH has successfully grown each brand to be a dominate player within its respective space over the past three years, and we believe [the company's] apps have significant monetization opportunities going forward."

Based on that long-term outlook, Cassel rates MTCH an Overweight (i.e. Buy) along with a $151 price target. This figure suggests a 43% upside from current levels. (To watch Cassel’s track record, click here)

Overall, Match Group gets a Moderate Buy rating from the analyst consensus, with 8 Buys and 6 Holds set in the past month. The stock is selling for $105.2, and the average price target, now at $119.71, implies a one-year upside potential of ~14%. (See MTCH stock analysis on TipRanks)

MGE Energy (MGEE)

On the surface, the last stock on our list would seem to be a good buy. MGE Energy is a utility holding company based in Madison, Wisconsin. The company’s main subsidiary is Madison Gas and Electric, which provides both electric and natural gas utilities throughout much of Wisconsin. Gas is an important sector in this Midwestern state, where winters can be harsh and affordable heating is necessity.

MGE’s revenues and earnings have slipped in 1H20, as part of the general market slide, although the company has remained profitable. The shares have underperformed the broader markets, and are down 20% year-to-date.

On a positive note, MGE has maintained its dividend through the COVID crisis. Management cited the company’s 40-year commitment to the dividend payment, which currently stands at 37 cents per common share quarterly, and yields a 2.4%.

Morgan Stanley analyst Stephen Byrd is not sanguine about MGE’s longer-term outlook, however.

“Without a multiyear track record of strong growth and execution, we remain cautious for now on longer-term growth prospects, and wait for more evidence of incremental capital programs before assigning a larger premium for a strong, sustainable growth outlook,” the analyst commented.

To this end, Byrd rates this stock a Hold and his $64 price target implies shares will stay range-bound for the foreseeable future. (To watch Byrd’s track record, click here)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.