Top 20 Stocks to Buy with Upside Potential to 62%: Morgan Stanley

Even though the US stock market has enjoyed an impressive rise, the top minds at Morgan Stanley are restless.

Investors and market volatility have calmed down since early August, when the S&P 500 rebounded 8.6% from its lows. During that time, the CBOE Volatility Index has been cut by more than half, although the VIX rose slightly last week.

Upbeat job and retail sales reports sparked a buying frenzy, but Morgan Stanley strategists led by Michelle Weaver noted that economic data continued to send mixed signals. Until the growth outlook becomes clearer, the firm is sticking to its risk-off approach.

“The future remains uncertain as we look to the upcoming jobs report for confidence that near-term growth risks have subsided,” Weaver wrote in an Aug. 21 note. “Careful stock selection based on specific factors is especially important in this type of environment.”

Why Stock Picking Is All the rage — and the 20 best ideas

Without a clear economic narrative, investors need to take a closer look at the merits of individual companies rather than simply shifting their portfolios toward cyclical or defensive stocks.

Stocks are falling or floating on their own terms, as Morgan Stanley found that about 63% of the returns for S&P 500 components are explained by company-specific factors. That’s an unusually high number and historically in the 80th percentile, the firm noted. That momentum holds across sectors and is especially noticeable after companies report earnings.

Morgan Stanley

Even though the cost of poor stock picking is higher, Weaver notes that active managers who make smart choices are more likely to outperform their index.

“The elevated equity-specific risk creates a stronger environment for stock selection,” Weaver wrote. “The market also shows signs of broadening, which would benefit a broader group of stocks.”

Larger price swings following earnings announcements separate winners from losers in markets.

Morgan Stanley

However, Morgan Stanley recommends maintaining a quality focus by sticking to larger stocks as well as those that are defensive in nature and can hold their own in all market conditions.

In a note, strategists at the Wall Street giant listed 20 companies across sectors and industries that are currently the favorite ideas of their analysts. These so-called high-conviction names have the potential to rise by up to 62%, based on Friday’s closing prices.

Below you’ll find Morgan Stanley’s top 20 ideas, along with their ticker symbols, market caps, sectors, industries, and Morgan Stanley’s price targets and potential rewards for executing them as of August 23.