Investing Club: Here's why Cramer says Morgan Stanley is a buy here

Published Fri, Feb 18 20222:09 PM EST

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Morgan Stanley shares have been hit hard over the past five trading days, falling nearly 10%, but we think they're now worth buying at these levels. We'd be adding to our Morgan Stanley position in the Charitable Trust if not for trading restrictions that prevent us from doing so for 72 hours after Jim Cramer talks about a stock on CNBC. Morgan Stanley has a just under 2.5% weighing in our portfolio . Here are three reasons we would be buyers, and why we believe the headline risk hitting the stock won't affect the company long term. 1. Dividend support With its stock around $95 per share Friday, Morgan Stanley carries a dividend yield of nearly 3%. We like that the stock appears to be sticky around that yield level. Case in point, shares traded at an intraday low of $93, before trimming their losses. It also happened on Jan. 18, when the stock fell below $94 on an intraday basis. It finished off its session low of $92.94 and closed at $94.01. On Nov. 30, 2021, as well, the stock breached $94 intraday, before closing that day at $94.82. Another reason we're viewing this recent share weakness as a buying opportunity: Morgan Stanley also is repurchasing about $3 billion of stock per quarter. 2. Confidence in management The Club has long been a fan of Morgan Stanley CEO James Gorman's efforts to transform the firm into way more than just an investment bank, which has been a tougher business than it was 12 months ago. Recent acquisitions of online brokerage E-Trade and asset management firm Eaton Vance support our view that the company is branching out from its roots. That strategy is still in place, and we believe in it over the long term. CNBC's Jim Cramer emphasized his support in management during the Club's "Morning Meeting" on Friday. When you buy this stock, you are making a bet also on ... James Gorman. I think Gorman has done a remarkable job getting that multiple from 8 to 14. How did that happen? Because he's developed ... the steady stream of business that is wealth management, which is a fabulous business." Also keep in mind that Morgan Stanley is the kind of company that benefits from Federal Reserve interest rate hikes, which are expected to begin next month for the first time since the cost of borrowing money went to zero during the early days of Covid in March 2020. We consider MS as one of our favorite stocks to own in this environment. 3. Great earnings We thought Morgan Stanley' s fourth-quarter results were great , and the report is only a month old at this point. That gives us confidence to buy into weakness, or buy the dip as the strategy is also called. That's because we know the company is doing well in its core business even as the stock market volatility continues. We applied similar logic to our decision to add Qualcomm (QCOM) to the portfolio this week, initiating with a buy of 100 shares on Wednesday, followed by similar adds on Thursday and then again Friday . What about those investigations? There's a lot weighing on markets right now — Russia-Ukraine tensions, inflation, the Fed — and some of Morgan Stanley's weakness may be related to that challenging macro picture. There also might be some company-specific news hurting the stock, though. On Monday, the Wall Street Journal reported the Securities and Exchange Commission issued subpoenas to Morgan Stanley and Goldman Sachs as part of a probe into block trading — when institutions buy or sell large chunks of stock in a single transaction. Then on Thursday, Bloomberg reported Morgan Stanley's involvement in the Archegos Capital fiasco accelerated the block-trade inquiry. As we wrote in our Thursday afternoon note , we're watching these developments. But at this point, we view them primarily as headline risk, not a material problem, knowing that Morgan Stanley will comply with the subpoenas, and we do not believe it will impact earnings or corporate culture. (Jim Cramer's Charitable Trust is long MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Source: Morgan Stanley

Morgan Stanley shares have been hit hard over the past five trading days, falling nearly 10%, but we think they're now worth buying at these levels.