With shares of Morgan Stanley (NYSE:MS) trading around $33, is MS an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.
T = Trends for a Stock’s Movement
Morgan Stanley is a global financial services company that, through its subsidiaries and affiliates, provides its products and services to a range of clients and customers: corporations, governments, financial institutions, and individuals. The company operates in three segments: institutional securities, global wealth management group, and asset management. Morgan Stanley provides financial advisory and capital-raising services; equity, fixed income, and alternative investments; and merchant banking services. It participates in an industry that powers most other types of businesses around the world.
Morgan Stanley rose the most in almost six months after reporting profit that beat analysts’ estimates on higher equity-trading revenue and record wealth-management earnings. Shares of the company jumped 4 percent to $33.29 in New York trading at 12:02 p.m., the biggest intraday gain since July 18 and the highest price since November 18, 2009. Fourth-quarter profit at the New York-based bank was 50 cents per share excluding an accounting charge tied to the firm’s own debt, a tax benefit, and legal costs, beating the 44 cent average estimate of 26 analysts surveyed by Bloomberg. Morgan Stanley’s stock climbed 64 percent in 2013, the most among the 10 largest global investment banks, as Chief Executive Officer James Gorman cut costs and improved margins at the brokerage unit.“The market likes what James is doing” and his strategy of relying more on the brokerage for profits, Brad Hintz, an analyst at Sanford C. Bernstein & Co., said in a Bloomberg Television interview. “Now he is moving on to the next challenge, which is fixed income and the ROE.”
T = Technicals on the Stock Chart Are Strong
Morgan Stanley stock has been trending higher in recent months. The stock is currently trading near highs for the year and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Morgan Stanley is trading above its rising key averages, which signals neutral to bullish price action in the near term.
Source: Thinkorswim
Taking a look at the implied volatility (red) and implied volatility skew levels of Morgan Stanley options may help determine if investors are bullish, neutral, or bearish.
|
Implied Volatility (IV) |
30-Day IV Percentile |
90-Day IV Percentile |
|
| Morgan Stanley options |
22.47% |
0% |
0% |
What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts as compared to the last 30 and 90 trading days.
|
Put IV Skew |
Call IV Skew |
|
| February Options |
Flat |
Average |
| March Options |
Flat |
Average |
As of Friday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Increasing Quarter Over Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Morgan Stanley’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Morgan Stanley look like and more importantly, how did the markets like these numbers?
|
2013 Q4 |
2013 Q3 |
2013 Q2 |
2013 Q1 |
|
| Earnings Growth (Y-O-Y) |
-78.79% |
78.57% |
41.38% |
916.67% |
| Revenue Growth (Y-O-Y) |
11.43% |
7.44% |
22.49% |
17.64% |
| Earnings Reaction |
4.16%* |
2.25% |
4.37% |
-5.4% |
*As of this writing.
Morgan Stanley has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Morgan Stanley’s recent earnings announcements.
P = Excellent Relative Performance Versus Peers and Sector
How has Morgan Stanley stock done relative to its peers – UBS (NYSE:UBS), TD Ameritrade (NYSE:AMTD), and Charles Schwab (NYSE:SCHW) — and sector?
|
Morgan Stanley |
UBS |
TD Ameritrade |
Charles Schwab |
Sector |
|
| Year-to-Date Return |
6.3% |
8.47% |
5.22% |
2.81% |
6.7% |
Morgan Stanley has been a relative performance leader, year to date.
Conclusion
Morgan Stanley is a financial services company that provides service to consumers and companies across the globe. The company rose the most in almost six months after reporting profit that beat analysts’ estimates. The stock has been trending higher in the last year and looks ready to continue. Over the last four quarters, earnings and revenues have been on the rise, which has left investors pleased about earnings announcements. Relative to its peers and sector, Morgan Stanley has been a relative year-to-date performance leader. Look for Morgan Stanley to OUTPERFORM.
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