Buy these 'safe haven' global tech stocks as risk-appetite returns, Morgan Stanley says

Published Tue, Mar 29 20227:53 PM EDT

Morgan Stanley has named a number of "safe haven" stocks it thinks investors should own amid a broad sell-off in the tech sector. The tech-heavy Nasdaq Composite is down around 8% this year, as high-growth tech names get hit by the prospect of impending interest rate hikes and tighter monetary policy. A string of earnings disappointments by tech giants Meta , Netflix and PayPal have piled additional pressure on the sector. And the pain is not just being felt in the U.S. Morgan Stanley's analysts, led by Adam Wood, noted on Mar. 25 that global tech stocks in its coverage are down 17% this year. Nevertheless, the bank continues to see "strong fundamental dynamics" within the sector, with certain sub-sectors having "very high gross margins, good pricing power and robust operating profit margins." Read more Russia's Ukraine war could lead to the largest disruption ever in commodities supply, says Goldman Moreover, inflationary pressures have been around for some time, Wood said, and the sector has limited exposure to the commodities sector, which has been plagued by " extreme price volatility," following Russia's invasion of Ukraine . The bank also sees strong demand in areas such as cloud, security and digital, and says valuations have become "more palatable" in many cases. "We identify safe haven stocks as well as growth stocks to own as market risk-appetite returns," the bank said. 'Safe haven' picks Morgan Stanley named two "conviction overweight ideas to ride out volatility." These included German software giant SAP , which the bank says is trading close to historical lows. It believes demand for the company's products will hold up well and expects its cloud business to deliver "best-in-class growth at scale." The bank has a price target of 134 euros ($146.70) on the stock, which closed at around 101 euros on Mar. 28, representing a potential upside of 33%. British software firm Sage is the other top pick. Morgan Stanley believes the company is now better positioned to drive growth and expand margins given its investments in research and development and disposal of non-core assets in recent years. "We feel we have more visibility on Sage's product portfolio and how cloud native products can cover key markets… We are [also] confident that the risks posed by other players such as Intuit and Xero are overestimated," Wood said. The bank has ascribed a price target of 880 pence ($11.60) on the stock, which represents a potential upside of 27.5% to the stock's closing price of 690 pence on Mar. 28. Read more These are the best tech stocks in an 'inflationary world,' according to Baird 'Attractive growth' picks Morgan Stanley also identified "three attractive growth stocks as risk-appetite returns." These include Dutch payments company Adyen , which it describes as a "structural winner" and its top pick in the European payments space. The bank noted that the company's growth had accelerated post-Covid, expanding its addressable market as a result. The bank also says Adyen's valuation is at a "more palatable" level and forecasts revenue growth of over 30% this year. Morgan Stanley has a price target of 2,800 euros on the stock, which closed at around 1,768 euros on Mar. 28 — an implied potential upside of 58.4%. French business consultancy firm Capgemini also makes the bank's list. Morgan Stanley sees the European IT services heavyweight as a "key beneficiary" of a pick up in demand as companies step up their digital transformation efforts. The bank believes the market is potentially underestimating the strength of secular tailwinds, as well as potential upside around the company's manufacturing business after its acquisition of Altran Technologies. Rounding off the bank's list is Danish consumer review website Trustpilot . Shares in the company are down more than 50% this year, but Morgan Stanley believes its growth story remains "intact." "We see Trustpilot's large-scale market opportunity as unchanged, with momentum being gained in multiple markets. The business model also generates significant network effects, which we think creates barriers to entry," Wood said. Morgan Stanley has a price target of 260 pence on the stock, which implies a potential upside of 84.4% to the stock's closing price of around 141 pence on Mar. 28.

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Morgan Stanley has named a number of "safe haven" stocks it thinks investors should own amid a broad sell-off in the tech sector.