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Morgan Stanley expects the S&P 500 to plunge one other 17%-27% throughout the subsequent 4 months — use these 3 high recession-resistant shares for cover


If you happen to suppose the inventory market selloff has come to an finish, Morgan Stanley has some unhealthy information.

The S&P 500 is already down 14% yr up to now, however the Wall Road juggernaut believes the market has but to hit a backside.

“Our ’22/’23/’24 base case estimates are actually 3%/13%/14% beneath consensus, respectively,” a group of Morgan Stanley analysts led by Mike Wilson write in a current be aware to traders. “In our base case, 2023 now marks a modest earnings contraction (-3% year-over-year progress), although we don’t embed an financial recession on this state of affairs.”

“Whereas acknowledging the poor efficiency in equities year-to-date, we don’t suppose the bear market is over if our earnings forecasts are right.”

The analysts anticipate the S&P 500 to fall to three,400 by year-end. And if a recession hits the financial system, they are saying the benchmark index may drop to three,000.

Contemplating that the S&P 500 sits at round 4,107 proper now, Morgan Stanley’s projection implies an extra draw back of 17% to 27%.

That doesn’t imply promoting every thing. The Wall Road agency nonetheless sees upside in fairly a number of corporations. Right here’s a have a look at three that it finds significantly enticing.

Don’t miss

Eli Lilly (LLY)

This American pharmaceutical large instructions round $300 billion in market cap, with merchandise marketed in 120 nations all over the world.

Regardless of the market downturn this yr, Eli Lilly just isn’t a beaten-down inventory.

Within the first six months of 2022, Eli Lilly’s income grew 6% yr over yr. In the meantime, the corporate’s adjusted earnings per share improved 12% from a yr in the past.

Shares are literally up roughly 16% thus far in 2022, and Morgan Stanley expects the development to proceed.

On Sept. 7, analyst Terence Flynn reiterated an ‘chubby’ ranking on Eli Lilly whereas elevating his worth goal from $395 to $412.

Contemplating that Eli Lilly shares commerce at round $317 apiece proper now, the brand new worth goal implies a possible upside of 30%.

Welltower (WELL)

Welltower is within the actual property enterprise.

The corporate doesn’t personal fancy purchasing malls or posh workplace buildings. As a substitute, it focuses on well being care infrastructure and supplies actual property capital to senior housing operators, post-acute care suppliers and well being programs.

In Q2, Welltower’s income grew 29.1% yr over yr to $1.47 billion. Its same-store internet working earnings rose 8.7%.

Well being care is a recession-resistant sector, so well being care-anchored actual property is usually in excessive demand.

The corporate additionally advantages from a significant demographic tailwind: inhabitants growing older.

Morgan Stanley analyst Ronald Kamdem notes that the inhabitants aged 75 and older is predicted to develop by 4% yearly by way of 2030, which may function a catalyst for Welltower’s enterprise.

Kamdem has an ‘chubby’ ranking on the corporate and a worth goal of $90 — implying a possible upside of 15%.

Exxon Mobil (XOM)

Because of sturdy oil costs, vitality shares have turned out to be a few of the greatest performers of the S&P 500 thus far this yr.

Exxon Mobil, as an illustration, is up 53% yr up to now — and that’s after a robust rally in 2021.

The oil-producing large gushes income and money circulation on this commodity worth atmosphere. Within the first six months of 2022, Exxon earned $23.3 billion in income, an enormous enhance from the $7.4 billion within the year-ago interval. Free money circulation totaled $27.7 billion for the primary half, in comparison with $13.8 billion in the identical interval final yr.

Stable financials enable the corporate to return money to traders. Exxon pays quarterly dividends of 88 cents per share, translating to an annual yield of three.6%.

Morgan Stanley analyst Devin McDermott has an ‘chubby’ ranking on Exxon and lately raised his worth goal to $113 — roughly 16% above the present ranges.

What to learn subsequent

This text supplies info solely and shouldn’t be construed as recommendation. It’s offered with out guarantee of any form.




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