Morgan Stanley's top picks for the rest of earnings season

Published Wed, Jul 26 20232:31 PM EDTUpdated Wed, Jul 26 20232:56 PM EDT

While Wall Street's expectations are lower this corporate earnings season, there are still several stocks Morgan Stanley said could rise in the near term. The start of next week will mark the halfway point of this earnings season, with almost a third of the S & P 500 constituents set to report their results. Pharmaceutical names Merck and Pfizer are set to release their earnings Tuesday, as is chipmaker Advanced Micro Devices . Tech giants Amazon and Apple are also on deck to report that week. Morgan Stanley's estimates for second-quarter earnings are down 9% year to date and flat sales growth, which the firm attributes to lagged and elevated costs. The firm's equity strategist Michelle Weaver wrote in a Wednesday note that second-half earnings should accelerate after the second quarter, with a rebound in 2024. "Recent guidance highlights that demand weakness is starting to show in certain pockets (particularly in goods-oriented sectors), while services oriented pockets have seen more durable guidance. At the same time, some companies are indicating a deceleration in pricing power that, up to this point, had helped offset higher costs," she added. With this in mind, the firm screened for stocks that it expects to drive upward on a near-term catalyst. Take a look at some of the names, and where analysts see them headed next. Amazon is one of Morgan Stanley's top picks for this earnings season. The firm believes potential catalysts include positive earnings revisions and its AWS Summit on cloud computing and generative artificial intelligence. "We think upward revisions to North America profits, driven by shipping and fulfillment cost per unit efficiencies, combined with a more durable consumer and a potential reacceleration of AWS revenue in 3Q/2H23 provides a favorable backdrop as we head into the second half," said analyst Brian Nowak. He added that multiple appreciation and earnings revisions could drive the stock upward. Amazon shares have popped more than 50% year to date. The company is scheduled to report after the close on Aug. 3. Yum Brands , which operates restaurant chains including Taco Bell and Pizza Hut, is another one of the firm's favorite names this earnings cycle. Analyst Brian Harbour is overweight on shares, citing its "attractive valuation" and strong fundamentals relative to other large franchised fast-food restaurants. Harbour thinks a better bottom line in the second quarter and stronger sales trends should result in less risk of the company repeating its first-quarter miss . "We view YUM's sales momentum, China recovery, durable development outlook, leadership in technology and exposure to emerging markets as key drivers of the stock. With fairly good visibility into 2H23/2024 earnings under its 98% franchised model and franchisee health strong, we believe risk reward skews favorably," Harbour said. The stock has gained 7% in 2023. Yum is expected to report on Aug. 2. Web development platform Wix could see tailwinds from its recent AI-coupled product announcements, according to analyst Elizabeth Porter. "The combination of recent underperformance, better-than-anticipated impact from AI, insider buying, stability in web trends and achievable Q2 revenue guidance for 11% growth YoY (up from 10% in Q1 on a 4-point easier compare), creates an undemanding set-up into the Q2 print, in our view," Porter said. However, she noted that concerns over the macro environment and longer-term concerns over competitive pressure on AI have weighed down the stock. Shares are up 11% year to date. Wix is set to report on Aug. 3. — CNBC's Michael Bloom contributed to this report.