Apple and Tesla are among Morgan Stanley’s top ‘secular growth’ stock ideas for 2021

Published Wed, Dec 2 20202:10 PM ESTUpdated Mon, Dec 7 20203:42 PM EST

(This story is for CNBC Pro subscribers only.) Morgan Stanley just released its annual list of "secular growth stocks," which are the 42 equities the Wall Street firm believes can deliver growth through their unique strengths. The list is scattered with growth stocks with "reasonable valuations," like Alphabet, Apple and Tesla, the firm said. "Secular Growth Stocks is our list of companies that we believe can deliver strong growth, driven by forces such as sustainable competitive advantages, product cycles, market share gains, or pricing power," Morgan Stanley's equity research team said in a note to clients. Morgan Stanley first screened for stocks with growth characteristics before and during the Covid-19 pandemic. These equities had to be classified as growth names for 16 straight quarters, had to generate positive year-over-year revenue growth for the last 12 quarters and have to be expected to generate positive revenue growth in the two fiscal years after 2020. To narrow the list down further, Morgan Stanley only chose stocks rated overweight or equal weight from its company analysts and tried to choose stocks with compound annual growth rates and earnings estimates attractive relative to their sector. Morgan Stanley highlighted Amazon , a major beneficiary of the Covid-19 pandemic, because the firm expects the shelter-in holiday season to drive faster e-commerce growth. The firm said Amazon is well positioned after it expanded it fulfillment and shipping network. "The company has a number of faster-growing, structurally higher margin businesses (advertising, subscriptions, and AWS) that should allow the company to continue to invest heavily in its core retail business while still showing expanding margins over time," Morgan Stanley analyst Brian Nowak told clients. Nowak also highlighted Google-parent Alphabet as a secular growth pick as the leading player in paid search continues to benefit from advertising dollars and non-traditional advertising budgets shifting into digital. Shares of Alphabet are up more than 35% this year. "Google also owns YouTube, the leader in online video advertising, an industry we estimate will grow at a 15% CAGR from 2019 to 2024 to ~$65bn in the US alone," added Nowak. Morgan Stanley's Apple analyst Katy Huberty is bullish on the iPhone maker's new 5G phones. Huberty noted this week that survey data is pointing to a larger volume of new iPhone sales and a higher average selling price than consensus. "2020 marked an inflection year for Apple as the company has begun to prove that a more diverse portfolio of hardware and services combined with loyal customers and increasing engagement translates to secular, not cyclical, growth," Huberty said. Morgan Stanley also highlighted real estate companies Equinix and Prologis . The firm said Equinix, which is the leading global operator of colocation data centers, continues to benefit from the secular trend of IT outsourcing. Companies have increasingly shifted digital workloads from in-house data centers to third-party facilities, especially during the pandemic. "Industrial real estate owners, such as Prologis, are and have been key beneficiaries of the secular eCommerce trend that COVID-19 has accelerated and this higher penetration is expected to continue across several sectors," analyst Vikram Malhotra said about Prologis. The firm also highlighted DocuSign , which "has established itself as the de-facto eSignature solution and maintains leading market share in the $25Bn+ eSignature market," analyst Stan Zlotsky told clients. Morgan Stanley also highlighted Tesla for its its leadership in electric vehicle manufacturing, batteries and autonomous vehicles. "Ultimately, Tesla is aiming for a 'double-flywheel,' where the company can leverage its cost leadership in EVs to aggressively expand its user base... over time generating a higher percentage of revenue from recurring/high-margin services revenue. We think Services can drive the upside in the stock," Morgan Stanley analyst Adam Jonas said. — with reporting from CNBC's Michael Bloom.

People wait in line at the Apple Fifth Avenue store for the release of the new iPhone on October 23, 2020 in New York City.

Michael M. Santiago | Getty Images

(This story is for CNBC Pro subscribers only.)

Morgan Stanley just released its annual list of "secular growth stocks," which are the 42 equities the Wall Street firm believes can deliver growth through their unique strengths.

The list is scattered with growth stocks with "reasonable valuations," like Alphabet, Apple and Tesla, the firm said.