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Each year Morgan Stanley (NYSE: MS) publishes its Investment Perspectives – North America research report. In it, the company publishes a list of its “best ideas.” For our purposes, we can consider that these nine stocks are what Morgan Stanley believes to be the best stocks in North America.
Here is a look at that list and why Morgan Stanley thinks these stand out as North America’s top stocks.
Amazon.com (NASDAQ: AMZN)
With a price target of $420, Morgan Stanley expects Amazon shares to rise an additional 12% during the next year. At the time of the call, Amazon was trading near 52-week lows. It has already risen almost 30% in the last month.
Morgan Stanley cites what was at the time to be a low price relative to its 52-week trading range, a slowdown in investments by the e-commerce giant as well as low institutional ownership as a great setup for the stock.
A strong holiday quarter and increasing market share point to continued strength for Amazon this year.
Apple (NASDAQ: AAPL)
Morgan Stanley has a price target of $126 per share of Apple stock. What’s interesting about this call is that the stock has already risen around 10% since the last week of January. With yesterday’s closing price of around $125 per share, the stock has essentially reached Morgan Stanley’s price target. But I don’t think it will stop rising here.
The company has tremendous momentum from a resurgence of iPhone sales growth driven by the new iPhone 6 and 6 Plus. The larger screen size actually seems to be making a difference in terms of consumer demand.
Meanwhile, the stock is already up 13% for the year and 14% since its Jan. 28 earnings announcement. Shares have risen 5% in just the last three trading sessions. Apple stock is on a roll as iPhone and Mac sales pick up momentum and Apple Pay enjoys widespread adoption. I don’t see the move higher by Apple stopping here.
Canadian Pacific Railway (NYSE: CP)
The crude-by-rail movement is really only just getting underway. Warren Buffett shocked the markets in late 2009 when his Berkshire Hathaway (NYSE: BRK.B) acquired Burlington Northern Santa Fe Corp. – BNSF Railroad – for $44 billion. Warren Buffett doesn’t place short-term bets, and the acquisition was a clear vote of confidence in the long-term prospects of the crude-by-rail movement and of rail transportation in general.
The stock has fared well during the crash in oil prices and Morgan Stanley cites that Canadian Pacific is another example of a “low-cost, high-service transportation (provider that will) consistently outgrow peers.”
Delphi Automotive (NYSE: DLPH)
Delphi Automotive manufactures countless parts and components for trucks and automobiles. Morgan Stanley has a price target of $90 per share, roughly 15% above Wednesday’s closing price just under $78.
The firm cites Delphi’s exposure to all positive trends in the automotive sector, “safety, fuel efficiency, light-weighting and autonomous driving,” and expects Delphi to grow at roughly twice the rate of its peers.
Macy’s (NYSE: M)
Though mall traffic is down and many retailers are struggling, Morgan Stanley’s analysts seem confident in the prospects for Macy’s. The firm cites the potential for Macy’s to capture market share from other struggling retailers, “best-in-class cash-flow yield,” and its capacity to put its cash to work by repurchasing shares.
Morgan Stanley has a price target of $70 per share for Macy’s, roughly 8% higher than Wednesday’s closing price of just under $64.76.
Michael Kors (NYSE: KORS)
Shares of the clothing and accessories brand Michael Kors have been under pressure so far in 2015, with the stock down more than 5% while the S&P 500 has remained flat. Morgan Stanley expects “geographic expansion” to boost the stock, as well as expanding “categories & channels.”
In short, Morgan Stanley expects Michael Kors to sell more products through more retailers and in more regions than it has previously. For this, Morgan Stanley has a price target of $105, roughly 48% over Wednesday closing price of just over $71 per share.
Prudential (NYSE: PRU)
Morgan Stanley’s Nigel Dally views Prudential as “the most attractive large-cap insurer.” The analyst notes the company’s “reasonable” valuation and growth as well as its “strong return profile.”
With a price target of $102 per share, Morgan Stanley expects the stock to rise almost 30% from its Wednesday closing price of $79.19.
Salesforce.com (NYSE: CRM)
Salesforce has “more direct participation in secular demand for mobile, social, and cloud than any name we follow,” according to Morgan Stanley’s Keith Weiss. The firm is a leader in enterprise software and cloud solutions – it provides cloud and social solutions for businesses.
With a price target of $80, Morgan Stanley expects the stock to rise 36% over its Wednesday closing price of $58.80.
Steel Dynamics (NASDAQ: STLD)
Morgan Stanley points to a “favorable structural environment for steel” with its recommendation of Steel Dynamics. Noting market “consolidation, trade barriers, logistics issues and attractive underlying demands,” the firm has a price target of $28 per share for this steel production and metals recycling company. That represents a 46% gain over Wednesday’s closing price of $19.16.
Certainly some of Morgan Stanley’s “best ideas” are better than others. Apple, for example, strikes me as one of the best stocks in America – that’s why I personally own it. In terms of upside potential, Michael Kors tops this list, though Steel Dynamics is a close second with Salesforce.com not far behind.
Do you own any of these stocks? Let us know in the comment section below.
DISCLOSURE: I personally own shares of Apple.
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