'Boring is beautiful': Morgan Stanley's Mike Wilson says play it safe with stocks

Published Wed, Sep 21 20229:02 PM EDTUpdated Wed, Sep 21 20229:24 PM EDT

It's been a difficult year for stock markets. A massive sell-off in the first half that ranked among the worst in 50 years and bleak outlooks from some of the biggest U.S. companies have weighed heavily on market sentiment, with major U.S. indexes in the red this year. "We have been pretty consistently defensive all year on our general thesis that the Federal Reserve is going to be hiking aggressively and that growth was going to disappoint. It has worked out quite well," Morgan Stanley 's chief U.S. equity strategist told CNBC's " Squawk Box Asia " on Wednesday. "I know it's boring, but sometimes boring is beautiful. It has worked out really well so far," he said. Wilson isn't the only investment pro who's favoring a defensive stance. A slew of investment banks on Wall Street are urging investors to remain calm this week amid the market turmoil and invest in companies with defensive characteristics. There have been several false dawns in this year's bear market, including a summer rally that saw a resurgence in technology stocks — one of the most beaten down sectors in the first half's market rout. But Wilson is not convinced. "There has been a couple of bear market rallies where people have gone back to some of the more cyclical parts in the market, or they have chased some of the big tech names again, but we think that's been a mistake," he said. He added that cyclical parts of the market, such as tech, continue to look "vulnerable" to him. Most important quality How should investors position themselves against such a backdrop? Wilson said companies with operational efficiency are likely to do well in the current environment. He added that the market has been rewarding companies that can efficiently deliver profits, even if their revenues aren't "necessarily growing the fastest." "Pricing power is one of those factors that will help operational efficiency but what it really comes down to is companies that are managing costs better," he said. The bank takes into account three types of costs: labor costs, inventory costs and capital expenditure. Read more Does FedEx's bleak outlook flash a warning signal for investors? Here's what the pros say Fund manager says the bear market is going to get 'nasty' — but says he's not 'freaking out' Want to play the EV sector? Here's one lithium stock that analysts say could soar 70% Wilson noted that companies with "modest" spending in these areas have been "rewarded" this year. He added that the trend is likely to persist until the market "decides it wants to be more offensive." "That's our strategy and it has been working well. We don't want to get too complacent or, you know, too dogmatic here, but we just don't think it's time to flip into the more aggressive parts of the market yet or the aggressive names that have high operating leverage," he added.