Buy these 39 quality stocks with rising earnings in a market with intriguing but imperfect parallels to the highly volatile fall of 2016
James Faris
- Donald Trump appears to be gaining momentum, just as he did in the fall of 2016.
- But just like the outcome of the upcoming election, the investing implications are unclear.
It's starting to look like the fall of 2016 all over again, though looks can be deceiving.
Eight years ago, in late October, Donald Trump rode a rising wave of momentum that culminated in a presidential win that shocked many. Economically sensitive stocks, including financials and industrials, took off in anticipation of that result and caught fire after it became official.
Although that pivotal autumn may feel like a lifetime ago, strategists at Morgan Stanley recently noted that there are a few key similarities between that backdrop and today's market.
While polls indicate that former President Trump is in a tight race with Vice President Kamala Harris, election markets are telling a different story by assigning Trump a 63% chance of victory, up from 49% at the end of September. Other odds providers are telling a similar story.
Investors are setting up their portfolios for a Trump winIt's not just the betting markets that appear convinced that Trump has the upper hand.
Several parts of the stock market seem to be preparing for another Trump presidency, according to Morgan Stanley. Consumer-focused stocks that would be hit hard by Trump's tariffs have suffered lately, as have renewable energy companies that may do better under Harris.
Meanwhile, cyclical firms also briefly surged alongside Trump, which is reminiscent of 2016.
"Directionally, sector leadership is leaning toward the 2016 playbook to some extent (i.e., Financials and Industrials outperforming)," wrote Mike Wilson, the chief US equity strategist at Morgan Stanley, in a late-October note.
However, investors may want to take that latter trend with a grain of salt.
Industrials have given back all their gains from earlier in the month in the last two weeks, while other cyclical stalwarts like materials and small caps are down in the last month. And although financials have been hot, Wilson thinks that's largely due to better-than-anticipated earnings.
"The magnitude of these sector moves is unconvincing outside of Financials, which have also been the beneficiary of a strong earnings season and improving fundamentals — the primary reason for our upgrade three weeks ago," Wilson wrote.
Further complicating the picture is the fact that this economic climate bears little resemblance to that of eight years ago.
In 2016, the federal funds rate was low but starting to rise since inflation was a non-issue. The opposite is true today, as interest rates are beginning to fall from a relatively high level because inflation is declining, though it's still above the Federal Reserve's 2% target.
"Markets generally welcomed a reflationary playbook in 2016," Wilson wrote. "Inflation was not a headwind to consumers in the way it is now."
GDP growth is also much stronger now than it was in 2016, where components of the economy, like manufacturing, were just emerging from an extended contraction, as Wilson noted. The unemployment rate is also more than a half point lower.
39 quality stocks to buyTrump's win in 2016 coincided with a major rally for the broader market and cyclical stocks, though it's unclear if that would be the case again if political history repeats itself.
Regardless of who's in office, Morgan Stanley outlined a list of 39 economically sensitive stocks that should do well. These companies have an overweight rating from the firm's analysts, along with an above-median quality score relative to their sector peers and positive forward earnings revisions in the last three months.
Below are those stocks, along with the tickers, market capitalizations, price-to-earnings (P/E) ratios, sectors, and industries for each. Names are sorted alphabetically by sector and industry — and within their sector and industry, if applicable.
1. Alphabet
Ticker: GOOGL
Market cap: $2.116B
P/E ratio: 22.7x
Sector: Communication Services
Industry: Media & Entertainment
2. Netflix
Ticker: NFLX
Market cap: $323.2B
P/E ratio: 42.8x
Sector: Communication Services
Industry: Media & Entertainment
3. Spotify
Ticker: SPOT
Market cap: $77.3B
P/E ratio: 156.5x
Sector: Communication Services
Industry: Media & Entertainment
4. The Trade Desk
Ticker: TTD
Market cap: $59.3B
P/E ratio: 237.2x
Sector: Communication Services
Industry: Media & Entertainment
5. Burlington
Ticker: BURL
Market cap: $15.8B
P/E ratio: 37.3x
Sector: Consumer Discretionary
Industry: Consumer Discretionary Distribution & Retail
6. Gap
Ticker: GAP
Market cap: $7.8B
P/E ratio: 10.3x
Sector: Consumer Discretionary
Industry: Consumer Discretionary Distribution & Retail
7. TJX Companies
Ticker: TJX
Market cap: $127.5B
P/E ratio: 27.3x
Sector: Consumer Discretionary
Industry: Consumer Discretionary Distribution & Retail
8. Wayfair
Ticker: W
Market cap: $5.3B
P/E ratio: N/A
Sector: Consumer Discretionary
Industry: Consumer Discretionary Distribution & Retail
9. DoorDash
Ticker: DASH
Market cap: $64.5B
P/E ratio: N/A
Sector: Consumer Discretionary
Industry: Consumer Services
10. Yum Brands
Ticker: YUM
Market cap: $36.9B
P/E ratio: 24x
Sector: Consumer Discretionary
Industry: Consumer Services
11. Devon Energy
12. Diamondback Energy
13. Marathon Petroleum
15. Occidental Petroleum
16. Schlumberger
17. Nu
18. Wells Fargo
19. Goldman Sachs
20. Mastercard
21. Metlife
22. Dentsply Sirona
Ticker: XRAY
Market cap: $4.7B
P/E ratio: N/A
Sector: Healthcare
Industry: Healthcare Equipment & Services
23. Idexx Laboratories
Ticker: IDXX
Market cap: $33.5B
P/E ratio: 40.3x
Sector: Healthcare
Industry: Healthcare Equipment & Services
24. Halozyme
Ticker: HALO
Market cap: $6.4B
P/E ratio: 19.6x
Sector: Healthcare
Industry: Pharmaceuticals, Biotechnology & Life Sciences
25. Iqvia
Ticker: IQV
Market cap: $37.5B
P/E ratio: 26.7x
Sector: Healthcare
Industry: Pharmaceuticals, Biotechnology & Life Sciences
26. Zoetis
Ticker: ZTS
Market cap: $81B
P/E ratio: 35x
Sector: Healthcare
Industry: Pharmaceuticals, Biotechnology & Life Sciences
27. Eaton
28. Rockwell Automation
29. Nvidia
Ticker: NVDA
Market cap: $3,256B
P/E ratio: 62.4x
Sector: Information Technology
Industry: Semiconductors & Semiconductor Equipment
30. Atlassian
Ticker: TEAM
Market cap: $49.1B
P/E ratio: N/A
Sector: Information Technology
Industry: Software & Services
31. Autodesk
Ticker: ADSK
Market cap: $61B
P/E ratio: 58.1x
Sector: Information Technology
Industry: Software & Services
32. Fortinet
Ticker: FTNT
Market cap: $60.2B
P/E ratio: 46.5x
Sector: Information Technology
Industry: Software & Services
33. Hubspot
Ticker: HUBS
Market cap: $28.5B
P/E ratio: N/A
Sector: Information Technology
Industry: Software & Services
34. SentinelOne
35. Unity
36. Apple
Ticker: AAPL
Market cap: $3,435B
P/E ratio: 34.4x
Sector: Information Technology
Industry: Technology Hardware & Equipment
37. Linde
38. Sherwin-Williams
39. SBA Communications
Ticker: SBAC
Market cap: $24.7B
P/E ratio: 36.2x
Sector: Real Estate
Industry: Equity Real Estate Investment Trusts (REITs)
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