Morgan Stanley (NYSE:MS) is a global financial services company which provides its products and services to a range of clients and customers, including corporations, governments, financial institutions, and individuals. On 17Apr14, the company reported first quarter earnings of $0.68 per share, which beat the consensus analysts' estimates by $0.09. In the past year, the company's stock is up 20.89% excluding dividends (up 21.73% including dividends) and is beating the S&P 500, which has gained 18.05% in the same time frame. I just initiated my position yesterday. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to show that yesterday was a good time to purchase the stock for my growth portfolio.
The company currently trades at a trailing 12-month P/E ratio of 19.28, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 10.53 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $2.93 per share and I'd consider the stock inexpensive until about $44. The 1-year PEG ratio (1), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 19.25%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 19.25%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 25.96%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 1.3% with a payout ratio of 25% of trailing 12-month earnings while sporting return on assets, equity and investment values of 0.5%, 6.5% and 1.1%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 1.3% yield of this company is good enough for me to take shelter in for the time being.
Looking first at the relative strength index chart [RSI] at the top, I see the stock in middle-ground territory with a current value of 58.91 with upward trajectory since 11Apr14. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($31.20), I'm looking at $31.86 to act as resistance and the 50-day simple moving average (currently $30.38) to act as support for a risk/reward ratio, which plays out to be -2.63% to 2.11%.
- In the middle of May the company sold its first set of yen-denominated notes since the financial crisis. This is big news because the issuance of yen-denominated notes came to a complete halt in the first quarter of 2013 but the appetite now is increasing.
- The company bought Repsol's (REPYY, REPYF) remaining 12% stake of YPF (YPF) for $1.26 billion. YPF has been distressed since the middle of 2012 but has been rebounding in the past year and a half and I believe Morgan Stanley is making a smart move by purchasing the stake.
- The company got a slap on the wrist with a $5 million fine over their IPO practices. The Financial Industry Regulatory Authority [FINRA] charged the company with not providing adequate training to employees on 83 IPO cases between 16Feb12 and 01May13, of which Facebook (NASDAQ:FB) and Yelp (NYSE:YELP) became public in that time.
The company has been on my radar for quite some time, but for my dividend portfolio. During my last adjustment to the dividend portfolio I decided to not put Morgan Stanley in it, but instead put it in my growth portfolio. Fundamentally, the company is inexpensively priced based on next year's earnings estimate and on future growth potential while sporting excellent near- and long-term earnings growth potential. Financially, it has a small dividend but it was doubled back in April and can definitely double again pending future comprehensive capital analysis and review [CCAR] results. On a technical basis, the reward is about equal to the risk right now. Due to the high earnings growth expectations, inexpensive valuation on next year's earnings estimates, and better global economic conditions, I felt it was time to purchase my first batch in the stock yesterday.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long MS, FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.