Morgan Stanley’s strategists are no fans of consumer sectors–staples or discretionary–but that doesn’t mean all consumers stocks are stinkers, as stocks like Delphi Automotive (DLPH) and Macy’s (M) look primed to shine.
Bloomberg Morgan Stanley’s Adam Parker and team write:
When we compare sectors based on estimate achievability, valuation, and potential additional shareholder return, we prefer health care over consumer staples, and technology over consumer discretionary.
Although 2014 analyst estimates are too high for the market, health care estimates appear relatively more achievable than staples, and the sector beats estimates more often than staple.
Moreover, health care valuation remains attractive compared to consumer staples stocks on price-to-forward earnings, especially excluding biotech and devices.
But just because Parker sees underperformance for consumer stocks, doesn’t mean that some can outperform (just don’t look for consumer staples). They screened for stocks that appear set to outperform over three months and 24 months based on their quantitative models, yet are also favorites of Morgan Stanley’s fundamental analysts. Stocks that meet the criteria include Delphi Automotive, Macy’s and Penske Automotive (PAG), while stocks that fail on all criteria include J.C. Penney and VF Corp. (VFC).
Shares of Macy’s have gained 1.1% to $51.36 today, Delphi Automotive has dropped 0.4% to $57.65, J.C. Penney has dropped 3.2% to $8.88, Penske Automotive Group has risen 1% to $42.74 and VF Corp. has risen 3.3% to $232.03.
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