Morgan Stanley picked some quality stocks that clients should hold for the long term

Published Sun, Mar 21 20216:31 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

With the market possibly reaching an inflection point after a rebound for cyclical stocks, it may be a good time for investors to focus on quality stocks to own for the long run, according to Morgan Stanley. The firm put together a list of stocks for 2023, looking beyond the typical 12-month horizon focused on by sell-side analysts. "Our strategists' work has long supported the view that quality outperforms in the long run. Accordingly, we asked each of our US analysts to identify the highest-quality companies in their sector, the ones likely to strengthen their sustainable competitive advantage," the firm said in a note. The firm said that the list wasn't built on current valuations or analyst ratings, but instead a belief that these stocks are attached to the best franchises and business strategies in their industries. The full list includes many of the mega-cap tech names, including Google-parent Alphabet . The company has a market cap of more than $1.3 trillion, but Morgan Stanley analyst's believe that doesn't fully reflect one of the company's major business units. "YouTube is (arguably) the most undervalued ad platform in our space: YouTube Y/Y revenue growth accelerated to 46% Y/Y in 4Q20 as strength in direct response (DR) and the branded ad market recovery continued," the note said. "DR is one of the largest and fastest growing ad offerings on YouTube, and has enabled GOOGL to unlock new advertising budgets." In the financials space, Morgan Stanley sees long-term value not in the universal banks but in a mid-size bank and a payments company. The firm praised First Republic Bank 's loan growth and "pristine credit quality" and said Visa 's existing scale would help it hold off younger competitors. First Republic's stock is beating the market year to date, but Visa's shares have declined this year. Another stock that investors may be able to buy at a bit of a discount is Nike . The company's shares took a tumble on Friday after reporting a revenue miss for the fiscal third quarter . For investors who want to bet on the recent strength for the housing market continuing in the years ahead, Morgan Stanley pointed to Invitation Homes and paint company Sherwin-Williams . Those stocks also double as income plays, with dividend yields of 2.2% and 0.9%, respectively. "The step-up in home renovations during COVID-related lockdowns is likely to continue post-COVID as discretionary spending is reallocated to the home," the firm said about Sherwin-Williams. If an investor is going to buy stocks to store in the garage for the long term, it is only fitting that one of them is a sports car stock. Morgan Stanley's auto analyst Adam Jonas said in the note that Ferrari is the "highest-quality stock" in coverage area and that its iconic brand showed no signs of weakening. "Each year Ferrari introduces and replaces models and raises its average selling price (the current blended avg is $350k/vehicle)," the note said. "This helps keep the brand relevant, driving incremental customer purchases, margin accretion, and FCF generation."

A Ferrari is parked outside the New York Stock Exchange in celebration of Ferrari's initial public offering in New York City on Oct. 21, 2015.

Andrew Burton | Getty Images

The firm put together a list of stocks for 2023, looking beyond the typical 12-month horizon focused on by sell-side analysts.

"Our strategists' work has long supported the view that quality outperforms in the long run. Accordingly, we asked each of our US analysts to identify the highest-quality companies in their sector, the ones likely to strengthen their sustainable competitive advantage," the firm said in a note.