Three stocks that could rally on earnings, according to Morgan Stanley

Published Tue, Jan 24 20175:00 AM EST

Morgan Stanley on Friday gave clients a group of stocks that could rally on earnings. "Our analysts believe that one or more imminent events will drive the share price materially over the next 15 to 60 days," read the note, pointing to a select list of names with "high conviction going into earnings season." What makes the list unique, according to the report, is the firm's contrarian view on some of these names vs. the rest of the Street. One of the picks is Advance Auto Parts , which reports earnings on Feb. 16. Advance Auto Parts, 1 year Source: FactSet "We believe AAP sets up favorably into Q4 [fourth quarter] earnings as comps accelerated in Q3 [third quarter] and are poised to benefit from colder weather, easy 2017 comparisons, and margin improvement initiatives," equity analyst Simeon Gutman wrote. "In our view, 4Q16 could represent AAP's first positive reported SSS [same store sales] growth since 3Q15," the analyst said. Shares of the auto-parts retailer are up 21 percent in the past three months compared to a gain of 6 percent for the S & P 500 index. But even with the recent gains, Morgan Stanley predicts the stock could trade as high as $200 in the next 12 months, implying a 16 percent rally from here. "We rate the stock Overweight as we don't think the market is fully discounting AAP's margin expansion potential over the next few years," Gutman said. Another name on the list is Facebook , which is expected to report fourth-quarter results on Feb. 1. Facebook, 1 year Source: FactSet "We believe FB's industry-leading scale and engagement (1bn+ daily users spending 50+ mins/user per day on the platform) and consequent reach and targeting ability will allow it to continue to take share in online advertising," equity analyst Brian Nowak wrote. The analyst believes Facebook's ad revenue could continue to grow at an annual rate of 40 percent in 2017, driven by user growth and pricing power. "We believe FB's scale provides it with sustainable competitive advantages as it is able to invest on both the advertiser (new $195 ad products, improved self-service platform) and consumer (Live video, Instagram stories, Messenger) sides, thereby deepening its competitive moat... while delivering higher earnings power," he said. In the next 12 months, Morgan Stanley predicts shares of Facebook could trade as high as $155, implying a gain of nearly 22 percent from Thursday's close. Another stock Morgan Stanley likes on earnings is biotechnology firm Amgen , which is scheduled to report on Feb. 2. Morgan Stanley says investors' concern over potential changes in drug pricing may be overblown. Amgen, 1 year Source, FactSet "We foresee strength with Aranesp and Neulasta as well as favorable Enbrel pricing comparisons driving 2017 guidance above consensus expectations, and see AMGN moving higher post earnings as investor focus turns to Repatha outcomes data, for which we have high conviction," equity analyst Matthew Harrison wrote in reference to Amgen's drugs. The analyst believes forward guidance will trump any potential shortcomings that arise in the fourth-quarter results, causing shares of the drug-maker to move higher. "We see 2017 guidance as overshadowing 4Q16 [fourth quarter] results, and our 2017 revenue outlook is ~2% above consensus, which translates into 30 cents of EPS upside," Harrison said. Shares of Amgen are trading 12 percent below a 52-week high set in September. In the next 12 months, Morgan Stanley predicts the stock could trade as high as $187, implying a gain of nearly 22 percent from Thursday's close. — With reporting by Michael Bloom .

Customer vehicles sit parked outside an Advance Auto Parts automotive supply store in La Grange, Kentucky.

Luke Sharrett | Bloomberg | Getty Images

Morgan Stanley on Friday gave clients a group of stocks that could rally on earnings.

"Our analysts believe that one or more imminent events will drive the share price materially over the next 15 to 60 days," read the note, pointing to a select list of names with "high conviction going into earnings season."

What makes the list unique, according to the report, is the firm's contrarian view on some of these names vs. the rest of the Street.

One of the picks is Advance Auto Parts, which reports earnings on Feb. 16.