MORGAN STANLEY: Buy these 9 top-rated stocks now for market-beating returns of 15% or more over the next 3 months
One much-discussed element of the recovery is that a lot of the market's recent gains are concentrated in a relatively small number of stocks. "Only 42% of the S&P 500 constituents have beat the index return in July, which ranks this month in the 9th percentile relative to the last 20 years," wrote Morgan Stanley Quantitative Strategist Boris Lerner in a recent note.
That leaves a lot of room for improvement in a lot of stocks. At the same time, one of the unusual features of the 2020 stock market is fading. That's the high correlation of stocks, or the fact that they've tended to rise together or fall together. "When stock correlation is high, there is less discernible benefits from diversification whereas low levels of stock correlation can present better opportunities for active stock pickers," he said. With correlations falling, he's identifying some of the stocks that have the best shot at standing out. The firm's MOST model uses quantitative measurements to find the stocks that can offer the best risk-adjusted return over the next three months. Lerner winnows the field further and introduces a human element by picking the stocks that rank in the top 20% according to the MOST model and are also rated "Overweight" by Morgan Stanley's analysts. The following stocks fit that bill and have upside of at least 15% based on Morgan Stanley's 12-month price targets. They're ranked from lowest to highest based on the amount of upside to that figure relative to their Wednesday closing prices.
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