Morgan Stanley analysts have named their top global stock picks in a choppy market, saying all of them look cheap right now. While Morgan Stanley — like other banks — remains cautious on stocks, given persistently high inflation, slowing global growth and the Ukraine war, it identified several "key overweights" in a note dated May 11. "Let's keep it simple — the macro backdrop is very difficult for stocks. Our European economists are revising their GDP forecasts lower, taking their inflation estimates higher and bringing forward the ECB's first hike to July," the analysts led by Graham Secker stated, referring to the likelihood of the European Central Bank raising interest rates. "At the same time, European bond yields (and spreads) are biased higher and geopolitical risks remain elevated," they added in the note, its European mid-year outlook. Cheap stocks Given these the economic conditions, Morgan Stanley likes stocks with the "best Risk-Reward in Europe." The bank's top picks all have at least 10% upside to its base case price target and a minimum market cap of $5 billion. The following stocks also appear on the bank's list of EU stocks that are trading "cheap" versus global peers. These include automaker Stellantis , with a 41% potential upside to the bank's base case price target, and luxury group LVMH , with 49% potential upside. It also chose eyewear company EssilorLuxottica , giving it a 26% potential upside to its base case price target, as well as renewable energy firm Orsted , with 36%, and building materials manufacturer Holcim with 21%. High conviction calls Morgan Stanley's analysts also made multiple "high conviction" recommendations, including staying overweight value versus growth stocks — value stocks are seen to be trading at a discount, while investors expect growth stocks to post strong earnings growth. The bank is also staying overweight stocks with a "high [and] secure dividend yield," such as insurance company Allianz , real estate firm British Land and telecoms firm Vodafone . "We also recommend investors focus on stocks that offer an attractive dividend yield, which we consider to be a 'short duration' strategy in the context of rising interest rates," the analysts stated. When it comes to indexes, the bank likes the FTSE 100 . "Despite strong relative performance [year to date] the index is still one of the cheapest asset classes anywhere," the analysts noted. The FTSE 100 managed to eek out gains of 0.38% in April, while many major indices fell. The S & P 500 slid 8.8% over the month, for instance, and the MSCI World index fell over 7%.
A screen displays the trading information for Morgan Stanley on the floor of the New York Stock Exchange (NYSE), January 19, 2022.
Brendan McDermid | Reuters
Morgan Stanley analysts have named their top global stock picks in a choppy market, saying all of them look cheap right now.