This is the Next Stock to Buy
This financial services giant’s stock returned 38 percent in 2020 and is still undervalued.
Growth stocks have blown value stocks out of the water over the past decade when it comes to price performance — even during this current recession. There has been such a great run for several growth stocks that they are now overpriced and a stock price bubble is threatening to burst. That’s what some experts are predicting, at least.
Long-term investors should also be looking at the value side of the fence for good stocks that are undervalued and poised to grow in order to mitigate the potential problems of a bubble burst. Morgan Stanley is one of the stocks I’m looking at right now that suits that bill (NYSE:MS). Let’s see why the next stock worth buying for your portfolio might be this banking giant.
Had a very good year for Morgan Stanley
In 2020, Morgan Stanley had a fine year, all things considered. In 2020, the stock price rose 38% and the company made some strategic investments and acquisitions that should sustain its future growth. At the same time, with a price-to-earnings ratio of just 11 and a price-to-book value of 1.64, it continues to be of great value. For the last 10 years, these numbers are around the historical averages, but it is a better value than usual right now, given the strategic movements the company has made.
The most recent figures for earnings bear that out. In 2020, the company posted record revenue of $48.2 billion, an increase of 16.4 percent over 2019, and net revenue of $11 billion, or $6.46 per share, a rise of 22 percent over 2019. The institutional services business, which includes Morgan Stanley’s investment banking and trading operations, had a record year with revenues of $25.9 billion, a year-on-year increase of 27 percent. Due to an increase in M&A transactions and a record year in underwriting, the investment banking segment had the greatest revenue increase, 46 percent.
“In response to the COVID environment, the year saw a rolling opening of markets beginning with debt and rescue financing, next with equity, and very recently, leveraged loans and corporate M&A financing,” CFO Jonathan Pruzan said in the fourth quarter earnings call. The investment banking pipeline is also robust as M&A activities have accelerated and there is a “strong backlog from IPOs, driven by leadership in healthcare and technology and follow-on activity, notably in the Americas and Asia.”
Morgan Stanley was second only to Goldman Sachs in investment banking market share in 2020, at 27 percent, according to a recent report by Bloomberg .
The best is yet to come for Stanley Morgan
Two strategic acquisitions were made in 2020 by Morgan Stanley to build on this strength. In October, it concluded a deal to buy E*Trade, which will strengthen its business in wealth management. It is the largest player in the U.S. in that sector, with 3.3 trillion in wealth management assets.
For the full year 2020, the wealth management segment saw revenue climb 7.3 percent to $19.1 billion, and E*Trade’s added scale and distribution capabilities will certainly help it grow.
In order to improve its third revenue stream — the investment management business, the company also acquired investment manager Eaton Vance. Morgan Stanley will have $1.2 trillion in assets under management when the deal closes later this year, with about $500 billion from Eaton Vance added. Eaton Vance brings additional strengths, such as separate accounts through its subsidiary Parametric and ESG investing through its subsidiary Calvert.
With an expense efficiency ratio of 68 percent in the fourth quarter, Morgan Stanley has also improved its efficiency, down from 75 percent in the fourth quarter of 2019. In addition, in the fourth quarter, the company had a return on tangible common equity of 17.7%, up from 13% in the fourth quarter of 2019. It was 15.2 percent, including integration-related costs, for the full year, up from 13.4 percent in 2019.
To me, everything adds up to a stock that’s a great purchase.
Should you invest $1,000 right now in Morgan Stanley?
You’ll want to hear this before you consider Morgan Stanley.
Investing legends and co-founders of Motley Fool David and Tom Gardner have just revealed what they believe are the 10 best stocks to buy from investors right now… And one of them wasn’t Morgan Stanley.
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