These 'quality' global stocks look cheap, says Morgan Stanley

Published Tue, Jun 22 20217:30 PM EDTUpdated Tue, Jun 22 20218:06 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Analysts at Morgan Stanley have picked stocks that they believe are currently "cheap" and represent "quality at a reasonable price." In a research note titled "Any Cheap Cyclicals Left?" and focused on the travel and leisure sector, the bank said Monday that many stocks have the economic recovery priced into their valuations. Cyclical stocks are those whose performance tends to be in line with the economy. But the analysts said several picks "stand out from our screens as looking cheap." Three of Morgan Stanley's recommendations have a potential upside of at least 20% to the bank's share price target in a best-case scenario. The analysts' 6 stock picks are: French catering and services company Sodexo has a potential upside of 23%, according to Morgan Stanley, which called it a "quality operator." It described airport foodservice firm SSP in the same way, and said the stock has a 7% potential upside. SSP stock is up 16% since the start of the year, according to the bank. Two of the bank's picks have a potential upside of 29%: British pub company Mitchells and Butlers (M & B) and gambling firm Flutter , which operates brands including PokerStars and Betfair. It picked M & B as one of the "most attractive" stocks for free cashflow yield, noting its stock price has risen 32% since the start of the year. British hotel and restaurant operator Whitbread is also a pick for the bank, which estimated its upside potential at 10%, and it also chose gambling operator Evolution , with a potential upside of 21%. "With investors continuing to look through what has so far been a later-than-expected reopening, we revisit our screens looking at 2019 and 2023 multiples (2020-22 distorted by Covid). We conclude that a lot of the recovery looks priced in with only a handful of names looking good value," the bank's analysts stated. Morgan Stanley's valuations are based on its forecasts for 2023, assuming a return to normality after populations have been vaccinated against Covid-19. "Our bull cases factor in scenarios for structurally higher margins and/or higher market shares post-Covid," its analysts wrote. Morgan Stanley is overweight all of the stocks mentioned, indicating it expects them to outperform. "Our strategists recommend quality at a reasonable price: Our EU Strategy team believe the macro environment has become somewhat less conducive for equity markets as growth momentum starts to peak and QE tapering discussions gather pace," the analysts wrote. QE tapering refers to the reduction in quantitative easing put in place by central banks to stimulate economies in light of the pandemic. "They also recently downgraded Cyclicals after a record rally which left positioning stretched and relative valuations at or near record highs. They believe this is an increasingly micro stock picking market over the summer and now recommend a more balanced approach to style and sector selection," the analysts added.

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Analysts at Morgan Stanley have picked stocks that they believe are currently "cheap" and represent "quality at a reasonable price."

In a research note titled "Any Cheap Cyclicals Left?" and focused on the travel and leisure sector, the bank said Monday that many stocks have the economic recovery priced into their valuations. Cyclical stocks are those whose performance tends to be in line with the economy.