If you think the global economy is about to expand, Morgan Stanley has some stocks for you

Published Sun, Jul 11 20217:38 PM EDTUpdated Mon, Jul 12 20215:03 AM EDT

Morgan Stanley believes the European investment landscape is transitioning and has picked a slew of stocks to buy that combine "quality, value and momentum." In a recent note to investors, Morgan Stanley's Head of European Quantitative Equity Research Alix Guerrini said the business cycle had recently moved to a new "mid-cycle regime." This switch to an "expansion regime" after 12 months in recovery provides a backdrop generally less favorable for pure value stocks and small caps, Guerrini said. Value stocks are those which trade at a discount relative to the company's financial fundamentals, and Morgan Stanley highlighted that while this area of the market tends to perform well during recovery regimes, it is the worst performer in all others. Amid this transition, Morgan Stanley's approach is to blend value, quality and momentum, while avoiding some unwanted exposure to cyclicals — those stocks whose performance generally aligns with the trajectory of the global economy. Their new quantitative model identified 21 stocks the bank expects to perform well over the next year, with Morgan Stanley establishing overweight positions. These included German automotive giant Daimler , British private equity firm 3i Group , Norwegian media group Schibsted, French utility Engie , British property firm Segro and Maersk, the world's largest container shipping company. Societe Generale was one of the banks picked by Morgan Stanley, while Nestle was one of its names representing the food and beverage sector. Three insurance stocks were included including Aviva , while materials also contributed three components — Holcim , Arcelormittal and BHP Group . The bank's strategists have suggested that the macro environment has become less favorable to equity markets as growth momentum begins to peak and discussions about central banks tapering their quantitative easing programs gather pace. "The extra uncertainty supports our view to take some risk off the table in the near term, as per our recent downgrade of cyclicals and upgrade of defensives," Chief European Equity Strategist Graham Secker wrote in the bank's mid-year outlook.

A Mercedes-Benz AG star logo sits the hood of a Mercedes-Benz S-Class automobile outside the Daimler AG headquarters in Stuttgart, Germany, on Tuesday, Feb. 11, 2020.

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Morgan Stanley believes the European investment landscape is transitioning and has picked a slew of stocks to buy that combine "quality, value and momentum."