- Growth stocks are outperforming their value peers now, but the trend is ever-shifting.
- Secular growth names promise expansion regardless because of competitive advantages.
- Morgan Stanley named 26 stocks to buy for growth outside of the tech, media, and telecom industries.
- See more stories on Insider’s business page.
Growth stocks are back in fashion after lagging their value counterparts to start the year.
In early 2021 investors took profits in the growth names that had dominated the market during 2020 and rotated into value stocks, anticipating a robust economic recovery. That trade has unwound in recent weeks as skepticism regarding the strength of the recovery grows while COVID-19 cases tick up.
Markets have seesawed in recent sessions between selloffs driven by virus fears and strong gains dismissing those fears. Timing the shifts between growth and value stocks can be exhausting.
Secular growth stocks, or those that can enjoy gains regardless of the economic backdrop, are one way for stock-pickers to approach an uncertain market.
In a July 23 note a team of Morgan Stanley strategists led by Adam Virgadamo compiled a semiannually updated list of such stocks and split it into two groups: those in the technology, media, and telecommunication (TMT) industries, and those that aren’t.
According to the strategists the non-TMT growth stocks have increased revenue in the past 12 quarters through the end of 2019, will achieve strong sale growth in 2022 and 2023, and can “deliver strong fundamental growth, driven by forces such as sustainable competitive advantages, product cycles, market share gains, or pricing power.”
The pandemic accelerated growth for many of these non-TMT names, though Virgadamo’s team warned that some of these stocks face difficult year-over-year earnings comparisons that they said could “be a risk to our near term growth views.”
Stock valuations are vital to consider given macroeconomic environment headwinds, and investors should remain choosy in case of a correction, according to the strategists.
“We believe the transition to a mid-cycle environment will lower equity market multiples and the premium paid for structural growth — a process that is underway — while a multi-year upward trend for rates may challenge valuations in long-duration equities,” the note read.
Below is Morgan Stanley’s list of the 26 stocks rated overweight (buy) or equal-weight (hold) for growth outside of the technology, media, and telecommunication industries, along with ticker, market capitalization, price-to-earnings ratios, and analysis.