Morgan Stanley's Slimmon says it's dangerous to be too defensive, names top 'offensive' stock picks

Published Wed, May 3 20238:30 PM EDT

The S & P 500 rallied 8% in one month. That's despite the banking turmoil, which fueled investor fears of a 2008-style financial crisis. But Morgan Stanley Investment Management's Andrew Slimmon isn't optimistic about the market. "Now that we have moved back yet again to the top end of this 3800-4200 range, with renewed banking issues in the headlines, I think the market is going to frustrate the bulls," he told CNBC. The S & P 500 closed at around 4,119 on Tuesday. "I do not see much upside in the market near-term," Slimmon, senior portfolio manager at the firm, said in notes sent to CNBC on Tuesday. According to him, that's because there are still recession concerns, markets are moving into the seasonality of lower returns, and earnings are coming down in 2023. "We need to get to the second half of the year when the market will be pricing in [earnings per share] reacceleration in 2024," Slimmon added. Stocks to buy Slimmon said it's time to buy some "offensive" stocks. The earnings slowdown could cause the market to "kind of collapse," he said. But any collapse won't take long as investors will start to anticipate a recovery in earnings next year, he added. Offensive stocks are those that tend to do well when the market goes up, while defensive sectors are the sectors that outperform when the market goes down. "So I think it's very dangerous to own just very defensive stocks … I think you want some offensive in your portfolio," Slimmon told CNBC's " Squawk Box Asia " on Tuesday. He likes the semiconductor sector, naming U.S. semiconductor firm Lam Research as one stock pick. He said he would go for a "combination of some cyclical, more risk-on with some risk-off" stocks, naming stocks such as Waste Management and retailer Costco . Near-term opportunity Slimmon said there's one area he sees as a near-term opportunity: China. He's optimistic on the country's economic reopening, with luxury retailers "reporting good numbers" and punters returning to Macau casinos. "If you're a longer-term investor, this is an opportunity because I think the economy's going to reopen," he said. He named the KraneShares CSI China Internet ETF to play the trend.