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Morgan Stanley: Buy These 3 Stocks on Recent Weakness

Investors are always looking for stocks that represent compelling investment opportunities but finding them isn’t always an easy task. That being said, Wall Street’s top investment firms can provide helpful insights as to which stocks boast a strong long-term growth narrative. Top analysts from Morgan Stanley have released updates on a few stocks that do just that.

The firm recently issued recommendations on 3 stocks, highlighting each as presenting a unique buying opportunity given recent weakness. Each boasts significant support from the rest of the Street as well as potential for substantial long-term upside.

Bearing this in mind, we used TipRanks’ investing tools to take a closer look at Morgan Stanley’s 3 picks.  

Here’s what we found out.

Uber Technologies Inc. (UBER)

It’s no question that it has been a bumpy ride for Uber since going public. As of its May 10 IPO date, shares are down 20% with some investors expressing their concern that recent headwinds will further delay a turnaround.

Uber has been bogged down by costs related to its public offering. On August 8, the company reported a second quarter loss of $5.2 billion, its largest ever quarterly loss, as a result of $3.9 billion worth of stock-based compensation expenses it incurred from the IPO. Even without those expenses, the ride sharing company still lost approximately $1.3 billion. However, management points out that its heavy investments in Uber Freight, food delivery and price reductions in its ride-hailing business can be attributed to the loss.

New regulation in California also threatens to derail Uber’s plans to reach profitability. California senators will vote on Assembly Bill 5 (AB5) this month which if passed, would make it more difficult for gig economy companies to classify workers as independent contractors. This would force Uber to consider drivers employees, which would adversely affect business.

That being said, Uber could pass the added costs along to consumers in order to offset some of the impacts of AB5. Not to mention the company stated on September 6 that it plans to invest $200 million per year in its fasting growing segment, Uber Freight.

One top analyst, Brian Nowak, argues that Uber has multiple ways to offset the headwind of AB5 being approved. “We expect Uber to pass through most of the higher costs to consumers and minimize the cash flow headwind…balancing the incremental costs Uber will bear with the expected impact on consumer demand from higher fares. This will come at a cost with an estimated 2021 negative financial impact ranging from 6-16% of contribution profit,” he explained. As a result, the five-star analyst reiterated his Buy rating and $57 price target on September 5. He thinks shares have the potential to surge 59% in the next twelve months.

All in all, Wall Street is bullish on the ride sharing platform. Uber boasts a ‘Strong Buy’ analyst consensus and a $54 average price target, indicating 61% upside potential.

Domino's Pizza, Inc. (DPZ)

While the pizza delivery chain hasn’t been shy about acknowledging the threat of third-party delivery services in recent quarters, Morgan Stanley tells investors to keep putting DPZ on their plates even though shares have dropped 1% year-to-date.

Domino’s Pizza invited several Wall Street analysts including Morgan Stanley’s John Glass to its “innovation garage” on September 6. The event showcased its new innovation and technology initiatives, with the analyst telling investors he remains convinced the company is set to serve up long-term gains.

While DPZ didn’t actually reveal anything brand new at the event, it did go a long way to renew the analyst’s confidence in the pizza chain.   

Among his takeaways from the event, Glass highlighted the fact that management maintained that it will be able to meet its three to five year same store sales guidance of 3% to 6% growth. Domino’s expects to achieve this thanks to several of its near-term initiatives.

As part of these initiatives, DPZ will start offering better carryout options as well as 20% off all orders placed after 9 p.m.

Adding to the good news, its GPS tracking is expected to be launched systemwide by the end of 2019. The company will also start testing autonomous vehicles to provide a cheaper delivery option for customers as they won’t need to tip.

Glass sees all of the above as steps in the right direction. “Unlike a typical analyst meeting, this event didn't break new news, but what we did hear was generally positive as management outlined some more specific near-term steps to drive domestic sales,” he explained. As a result, the four-star analyst reiterated his Buy rating and $287 price target on September 9. The price target demonstrates Glass’ confidence in DPZ’s ability to gain 17% over the next twelve months.

With 14 Buy ratings vs 7 Holds and 1 Sell assigned over the last three months, the word on the Street is that DPZ is a ‘Moderate Buy’. Its $285 average price target suggests 16% upside potential.

Boston Scientific Corporation (BSX)

The last stock on our list manufactures medical devices designed to provide less invasive medical solutions. Its devices include defibrillators, pacemakers as well as many other products for interventional medical specialties. While shares have declined 0.14% in the last month, Morgan Stanley’s David Lewis tells investors BSX shares are poised for long-term gains.

According to BSX’s July 24 Q2 earnings release, the company looks solid. It generated quarterly sales of $2.6 billion, up 5.6% on a reported basis and 6.3% on an organic basis from the year-ago quarter. Management attributes this to revenue growth across all segments.

The company’s latest acquisitions and new products are expected to drive even more growth. On August 26, BSX finalized its $4.2 billion acquisition of BTG plc, helping BSX expand its interventional oncology, arterial and venous therapy product offerings.

It also acquired Vertiflex Inc. back in June, which designed a minimally-invasive device to improve physical function and reduce pain in patients with lumbar spinal stenosis, or the narrowing of the spinal canal.

Not to mention BSX announced the FDA approval for its ImageReady MRI labeling for the Vercise Gevia Deep Brain Stimulation (DBS) system in an MRI environment on August 19. The system, along with the Vercise Cartesia Directional Lead, was developed to treat symptoms of Parkinson’s Disease, a progressive nervous system disorder that can cause shaking, muscle stiffness and slow movement. It’s estimated that 10 million people are affected by the debilitating disease globally.

All of these positive developments contributed to Lewis’ conclusion that BSX’s long-term growth narrative remains strong. As a result, he reiterated his Buy rating and $50 price target on August 29. The four-star analyst sees 20% upside potential for the company.

All in all, the rest of the Street mirrors the analyst’s sentiment. Boston Scientific boasts a ‘Strong Buy’ Street consensus as well as a $49 average price target, implying 16% upside potential.

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