Editor’s note: This article was first published in September 2013; its P/E ratios and 2012–2015 earnings growth estimates are from that time. Many of these companies have since been acquired, renamed or taken private (Facebook is now Meta, and Microsoft bought LinkedIn in 2016), so several tickers no longer exist. This list of stock picks dates from September 2013 and is kept as a historical record. It is not investment advice.
Morgan Stanley likes these 40 stocks, which it believes will tend to grow regardless of the ups and downs of the economic cycle.
After taking a quick look at the recommendations, I noticed that practically all of them are trading at record highs, and roughly half are technology stocks built around social media, the cloud, mobile technology, internet security and Big Data…
Even if the world economy grows more slowly than expected, Morgan Stanley thinks these stocks will grow strongly, but…
The truth is that they are scary, and not just because they are at record highs: some of them have P/E ratios that would frighten fear itself, which shows that some very optimistic growth forecasts are priced into these stocks, and we already know what happens when the market is disappointed.
Personally, I have serious doubts about some of them, although they would need to be analysed in more depth.
* EPS growth is the projected compound annual growth rate (CAGR) of earnings per share from 2012 to 2015, according to Morgan Stanley’s estimates and expectations.
* PEG (price/earnings to growth) is the P/E ratio divided by the expected growth rate. A low ratio suggests the stock is undervalued by the market; a high ratio suggests it is overvalued. Growth stocks with lower PEG ratios are generally considered cheaper.
* P/E is the classic price-to-earnings ratio.
(NM = not meaningful; NA = not available.)
21st Century Fox
Ticker: FOXA
EPS growth: 13.4%
P/E 2013: 21.6
PEG: 1.6
Alexion Pharmaceuticals
Ticker: ALXN
EPS growth: 34.6%
P/E 2013: 37.7
PEG: 1.1
Amazon.com
Ticker: AMZN
EPS growth: NM
P/E 2013: 662.7
PEG: NA
Athenahealth
Ticker: ATHN
EPS growth: 26.4%
P/E 2013: 113.7
PEG: 4.3
Atlas Energy
Ticker: ATLS
EPS growth: NM
P/E 2013: 26.6
PEG: NA
BorgWarner
Ticker: BWA
EPS growth: 16.1%
P/E 2013: 18.2
PEG: 1.1
Boyd Gaming Corporation
Ticker: BYD
EPS growth: NM
P/E 2013: 395.8
PEG: NA
According to Morgan Stanley, Boyd is one of the companies best positioned to benefit from the coming gradual legalisation of online gambling in the United States.
Cerner Corporation
Ticker: CERN
EPS growth: 16.1%
P/E 2013: 34.9
PEG: 2.2
Chart Industries
Ticker: GSL
EPS growth: 31.4%
P/E 2013: 37.1
PEG: 1.2
Morgan Stanley likes this company because of the adoption of LNG (liquefied natural gas) as a transport fuel in the United States.
Chipotle
Ticker: CMG
EPS growth: 21.1%
P/E 2013: 38.8
PEG: 1.8
Cognizant Technology Solutions
Ticker: CTSH
EPS growth: 17.8%
P/E 2013: 20.5
PEG: 1.2
Dunkin’ Brands Group
Ticker: DNKN
EPS growth: 17.3%
P/E 2013: 28.9
PEG: 1.7
Ticker: FB
EPS growth: 40.0%
P/E 2013: 67.0
PEG: 1.7
FleetCor Technologies
Ticker: FLT
EPS growth: 22.2%
P/E 2013: 28.2
PEG: 1.3
FMC Technologies
Ticker: FTI
EPS growth: 22.5%
P/E 2013: 25.3
PEG: 1.1
Fortinet Inc
Ticker: FTNT
EPS growth: 5.4%
P/E 2013: 44.5
PEG: 8.3
Genesee & Wyoming
Ticker: GWR
EPS growth: 30.8%
P/E 2013: 21.0
PEG: 0.7
Ticker: GOOG
EPS growth: 13.5%
P/E 2013: 18.3
PEG: 1.4
Ticker: LNKD
EPS growth: 74.8%
P/E 2013: 141.8
PEG: 1.9
Lululemon Athletica
Ticker: LULU
EPS growth: 16.7%
P/E 2013: 37.0
PEG: 2.2
Morgan Stanley believes the company’s number of stores could double over the next five years.
Marsh & McLennan
Ticker: MMC
EPS growth: 15.6%
P/E 2013: 17.7
PEG: 1.1
MasterCard
Ticker: MA
EPS growth: 18.8%
P/E 2013: 26.2
PEG: 1.4
Michael Kors Holdings
Ticker: KORS
EPS growth: 26.7%
P/E 2013: 27.9
PEG: 1.0
Oceaneering International
Ticker: OII
EPS growth: 19.1%
P/E 2013: 23.9
PEG: 1.2
Palo Alto Networks
Ticker: PANW
EPS growth: 42.4%
P/E 2013: 209.9
PEG: 5.0
Pandora
Ticker: P
EPS growth: NM
P/E 2013: 808.7
PEG: NA
Priceline.com
Ticker: PCLN
EPS growth: 26.1%
P/E 2013: 24.7
PEG: 0.9
Qlik Technologies
Ticker: QLIK
EPS growth: 49.2%
P/E 2013: 99.4
PEG: 2.0
Roadrunner Transportation
Ticker: RRTS
EPS growth: 23.5%
P/E 2013: 19.1
PEG: 0.8
Salesforce.com
Ticker: CRM
EPS growth: 22.8%
P/E 2013: 153.2
PEG: 6.7
SBA Communications
Ticker: SBAC
EPS growth: NM
P/E 2013: 149.5
PEG: NA
ServiceNow
Ticker: NOW
EPS growth: NM
P/E 2013: NM (2014 estimate: 409.3)
PEG: NA
Splunk
Ticker: SPLK
EPS growth: NM
P/E 2013: NM
PEG: NA
Starbucks
Ticker: SBUX
EPS growth: 20.8%
P/E 2013: 34.8
PEG: 1.7
According to Morgan Stanley, Starbucks is likely to see revenue growth driven by its expansion into food and its continued rapid international growth.
Tableau Software
Ticker: DATA
EPS growth: 8.1%
P/E 2013: NM
PEG: NA
Under Armour
Ticker: UA
EPS growth: 23.3%
P/E 2013: 53.5
PEG: 2.3
The company develops, markets and distributes clothing, footwear and accessories for men, women and young people. Growth of 20% is expected in the US market alone.
Urban Outfitters
Ticker: URBN
EPS growth: 21.5%
P/E 2013: 19.3
PEG: 0.9
E-commerce accounts for 30% of its revenue, a share that could reach 50% within five years.
Visa
Ticker: V
EPS growth: 19.8%
P/E 2013: 25.9
PEG: 1.3
Like MasterCard, Visa will benefit from the shift to electronic payments. At least, that is what Morgan Stanley expects.
Workday
Ticker: WDAY
EPS growth: NA
P/E 2013: NM
PEG: NA
Workday is a provider of cloud-based software which, according to Morgan Stanley, is well positioned to win a significant share from existing vendors.
Yelp
Ticker: YELP
EPS growth: NM
P/E 2013: 404.2
PEG: NA
Yelp connects people with local businesses. According to Morgan Stanley, it will be the “Yellow Pages” of the future.
Source: Morgan Stanley
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