Stocks like Dick’s Sporting Goods & Verizon are Morgan Stanley’s best buys for 2023
Morgan Stanley recently named a number of stocks that analysts believe are significantly undervalued going into the new year. The company said investors should buy these companies now as the risk/reward trade-off has never been better. CNBC Pro combed through Morgan Stanley’s research to find the best-positioned stocks to buy in 2023. These include Dick’s Sporting Goods, Verizon, Alibaba, Constellation Brands and Sealed Air. Dick’s Sporting Goods has been an “Olympic transformation” for the sporting goods retailer, according to analyst Simeon Gutman. The company said earlier this week that Dick’s Sporting Goods is one of the “rare” retailers to have successfully changed their sales/margin profiles. “Stories about retail transformation tend to lead to outsized stock returns,” he said. But Gutman is concerned that investors are still unconvinced, and acknowledges the company has a history of “uneven revenue growth.” Still, the company said investors should buy the stock. Dick’s Sporting Goods made structural changes before the pandemic that gave the company a “faster growing and more profitable business,” Gutman added. Meanwhile, the retailer’s customers have become more affluent and the sporting goods category has room for growth. “If DKS retains the bulk of its COVID-driven sales and margin gains, the stock screens will rank among the best risk-reward tradeoffs in retail,” he wrote. The company’s shares are up 6.9% this month. Constellation Brands analyst Dara Mohsenian stands by the beer and beverage giant’s shares — and investors should do the same, the company said recently. Shares are down nearly 9% over the past 12 months, but Mohsenian said the fear was largely overdone. “To be absolutely clear, we believe macros to have a negative and lasting impact on STZ beer consumption growth and expect future beer consumption growth to be more in the ~6% range from our previous modeled forecast of ~6-7%.” he said. But that translates into a very “compelling risk/reward trade-off,” according to the firm. Mohsenian said there are many positive catalysts ahead, including positive feedback from distributors and long-term stock gains. Additionally, growth in beer sales for the company’s fiscal third quarter was ahead of consensus. Morgan Stanley added that the market is wrongly calling Constellation “a broken growth story.” It’s all the more reason to take advantage of the buying opportunity, Mohsenian said. “Limited downside, substantial upside,” he said. Sealed Air According to analyst Angel Castillo and his team, the maker of bubble wrap and other packaging products is in full swing. This share in particular is simply too cheap at the current level, Castillo recently wrote in an outlook. He named Sealed Air as a top pick for 2023. The company said it sees “idiosyncratic growth drivers, balance sheet strength and solid shareholder returns.” Taken together, these factors should result in “volume outperformance both in 2023 and longer term,” Castillo said. The analyst noted that Sealed Air wasn’t immune to a hard macro, but said it was well-equipped to overcome the obstacle. “We believe that pricing power/stability will be even more important in 2023 than last year, and favor Sealed Air for its differentiated operating model, which has resulted in material price/cost outperformance and margin expansion in 2022,” he wrote . Shares are down about 20% over the past year. Constellation Brands “To be absolutely clear, we believe that macros are having a negative and lasting impact on STZ’s beer consumption growth and expect future beer consumption growth to be more in the ~6% range from our previous modeled forecast of ~6-7%…stock looks compelling here with limited downside and significant upside…why we think each of these concerns is overdone despite some merit and we see compelling risk/reward here…we think that market STZ unfairly values a fractured growth story.” Alibaba “BABA looks mispriced at an ex-growth P/E of 11x. … Relaxing regulation, particularly in fintech, is a key catalyst. Elevate to a non-consensus top -Pick – for the first time in three years…. Top pick in China’s internet industry in 2023: We see several Katalysa goals (re-opening, cost optimization, regulatory easing, cloud re-acceleration and valuation) driving the industry’s most compelling risk-reward trade-off.” Sealed Air “We reiterate our OWs on CCK & SEE where we see idiosyncratic growth drivers, balance sheet strength and solid shareholder returns. …As such, we believe pricing power/stability will be even more important in 2023 than last year & prefer Sealed Air for its differentiated operating model which has resulted in outperformance in material pricing/cost and margin expansion in 2022. … Remain overweight Crown Holdings & Sealed Air which we believe have idiosyncratic factors that could lead to outperformance in volume both in 2023 and longer term.” Verizon “Attractive risk/reward ratio with growing free cash flow After significant underperformance in ’22, VZ is trading at a historically attractive valuation on an absolute and relative basis.We see room for improved operational performance in ’23 and a FCF up 45% by ’24….However, we believe the stock to now pricing in an overly negative relative outlook from current levels and seeing signs that trends are beginning to improve.” Dick’s Sporting Goods “An Olympic transformation….LT, we believe DKS will be a faster growing and more profitable company….stories about the transformation in retail tends to lead to oversized stock returns. Just who Here are some examples of retailers who have successfully changed their sales/margin profiles. DKS might be one of the few… DKS has a history of uneven revenue growth and margins, and operates in a category that has been a significant beneficiary of COVID… If DKS retains the bulk of its COVID-driven revenue and margin gains, the stock screens with the best opportunities/risks in retail.”
https://www.cnbc.com/2023/01/14/stocks-like-dicks-sporting-goods-verizon-are-morgan-stanleys-best-buys-for-2023.html Stocks like Dick’s Sporting Goods & Verizon are Morgan Stanley’s best buys for 2023
