MORGAN STANLEY: These 12 stocks have the most downside

Ticker: WDR Sector: Financials Market cap: $1.6B Share price: $19.13 Downside to Bear: 58.2% We expect secular headwinds from regulatory pressures and poor fund performance to limit Waddell & Reed’s growth opportunities. Source: Morgan StanleyTicker: UNFI Sector: Retail Market cap: $2.4B Share price: $48.11 Downside to Bear: 50.1% UNFI's outlook is more challenged than the market appreciates, with muted sales growth expected across UNFI's segments and risk of expense de-leverage following an infrastructure build-out. Source: Morgan StanleyTicker: SWKS Sector: Technology Market cap: $14.7B Share price: $78.21 Downside to Bear: 50.1% We are Underweight SWKS and see two new risks to the company’s growth: (1) increasing competition from peer Qorvo in integrated products and (2) lack of premium filter technology. Source: Morgan StanleyTicker: JWN Sector: Retail Market cap: $10.2B Share price: $58.94 Downside to Bear: 54.2% Although we expect JWN to remain highly relevant given its best-in-class service and seamless multichannel shopping experience, its future EPS growth rate appears limited. Source: Morgan StanleyTicker: AEO Sector: Retail Market cap: $3.3B Share price: $18.08 Downside to Bear: 55.8% Given an increasingly competitive environment (promotional activity, rapid entrance of low-cost fashion players, including Primark), a deflationary apparel environment, and a structurally higher operating cost environment (rent, sourcing costs, IT investments, wage pressure), we are skeptical AEO will be able to deliver consistent positive comps or a low-double-digit EBIT margin long-term. Source: Morgan StanleyTicker: MYGN Sector: Healthcare Market cap: $1.1B Share price: $16.80 Downside to Bear: 58.3% We have continuing structural concerns over MYGN’s core hereditary cancer business driven by (1) hereditary market growth being modestly constrained by payor policies; (2) growing payor focus on MYGN's premium pricing due to new Medicare codes that prices competitors' hereditary panels at 60% lower; (3) competitors expanding commercial reach, as with the proposed LabCorp- Sequenom combination. Source: Morgan StanleyTicker: DRH Sector: Consumer Discretionary/Industrials Market cap: $2.0B Share price: $10.13 Downside to Bear: 60.5% DRH is exposed to unfavorable secular headwinds including (1) increasing supply in gateway markets (especially NYC where DRH has 12% EBITDA exposure), (2) increasing competitive pressure from alternative accommodations, and (3) continuing RevPAR deceleration. Source: Morgan StanleyTicker: DSW Sector: Retail Market cap: $1.9B Share price: $22.90 Downside to Bear: 60.7% Consumer migration to shopping online, increased competition on price by department stores and other concepts are making it increasingly difficult for DSW to drive traffic in stores and top line. Source: Morgan StanleyTicker: JCP Sector: Retail Market cap: $2.9B Share price: $9.47 Downside to Bear: 68.3% With SG&A dollars down 30% since 2011, we wonder if JCP can continue to significantly cut costs as it strives to drive in-store traffic and fend off online players such as Amazon. Source: Morgan StanleyTicker: LPLA Sector: Financials Market cap: $3.6B Share price: $39.89 Downside to Bear: 72.4% LPLA’s core brokerage business (60% of AUM) is likely to face continued pressure given regulatory headwinds from the DOL Fiduciary Rule, structural pricing compression, and shift to lower-fee products that reduce commission and transaction revenues. Source: Morgan StanleyTicker: CAR Sector: Consumer Discretionary/Industrials Market cap: $3.4B Share price: $38.48 Downside to Bear: 74.0% We believe the long-term impact from an ever-increasing number of ride-sharing and car-sharing options will come in the form of price, as well as potentially volume. Source: Morgan StanleyTicker: S Sector: Telecom Services Market cap: $29.3B Share price: $7.35 Downside to Bear: 77.6% While the near-term picture has improved, we still expect Sprint to struggle to profitably grow its subscriber base as the fourth largest wireless carrier, especially if the Bells begin to respond more aggressively to Sprint's promotions. Source: Morgan StanleyPRESENTING: The 9 stocks that matter most to hedge funds

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MORGAN STANLEY: These 12 stocks have the most downside

Waddell & Reed Financial

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