7 Big Buys By Morgan Stanley

by: Efsinvestment

Morgan Stanley (NYSE:MS) is among the most profitable investment banks. Last year, the company earned $3.67 billion in advisory fees. The company has a 5-star rating from Morningstar. Earnings are expected to grow by 125% for the next year, and long-term consensus earnings growth is expected to be 11.03%. With almost $500 billion in current assets, Morgan Stanley is one of the largest institutional investors in the stock market. The investment giant offers one of the largest portfolio of mutual funds:

With more than 2,500 investment options from over 150 mutual fund companies, Morgan Stanley Smith Barney offers a wide array of mutual funds to meet a broad range of investment goals.

As of the 2011 second quarter, Morgan Stanley had a diversified portfolio of equities. Financial stocks constitute 39.75% of the holdings, followed by services (17.01%) and technology (11.41%) companies. According to Edgar Online, Morgan Stanley increased its ownership of 2951 stocks, while opening 315 new positions in the last quarter. I have examined the boldest 7 buys from a fundamental perspective, adding my O-Metrix Grading System where applicable.

Company Name


Shares Held

% Change

% of TSO*

O-Metrix Score

Yandex NV


13.91 million




Express Scripts


11.62 million




Forest Labs


10.21 million




Covedien PLC


4.17 million






2.12 million






3.79 million




Philip Morris


16.27 million




Click to enlarge

*TSO: Total Share Ownership by the Morgan Stanley Funds

Data obtained from Finviz and Morningstar and is current as of Aug.19

Yandex had a pretty successful IPO in the last quarter. The company raised $1.3 billion with an initial price of $25. The stock surged up by almost 60% after opening up by 40%. At the first trading day stock went up to $39. Morgan Stanley owns 13.91 million shares with a total share ownership of 10.77%. While the company looks like it is headquartered in Netherlands, Yandex is the largest search engine in Russia.

Yandex is also involved in several other related businesses such as browser extension, email services, photo servers, map services, and traffic congestion monitoring. We can think of Yandex as the Google (NASDAQ:GOOG) of Russia and ex-USSR states. As of Aug 19, the stock is trading at 29.99. Thus, the first-day bubble is almost gone.

Still, Yandex is trading with a P/E ratio of 65 and a forward P/E ratio of 50. Analysts estimate 33.92% EPS growth for the next 5 years. Deutsche Bank (NYSE:DB) has a target price of $42. Compared to Chinese internet stocks, I think Yandex is fairly-valued, but investing in Russia has its own risks. The stock has an O-Metrix score of 3.01.

Express Scripts is a healthcare plan management company, headquartered in St. Louis, Missouri. Morgan Stanley owns 11.62 million shares, and increased its holdings by 322% in the last quarter. Total share ownership stands at 2.38%. The company is a high-growth company. EPS increased by 27% annually, in the last 5 year.

Analysts estimate 19.03% EPS growth for the next 5 years. However, the balance sheet has some red flags. While quick ratio of 0.5 is okay, the current ratio is only 0.57. Debt/equity and LT Debt/Equity ratios stand at 2.24 and 16.69, respectively. Thus, the company has some serious debt issues. Its trailing P/E ratio is 18.25, whereas forward P/E ratio is 11.54. Express Scripts has an O-Metrix score of 6.33.

Forest Laboratories is a developer, manufacturer, and retailer of pharmaceutical products. Morgan Stanley owns 10.21 million shares and increased its holdings by 235.63% in the last quarter. Total share ownership stands at 3.75%. The company is in good financial health with no debt issues. It has a low trailing P/E ratio of 8, but the forward P/E ratio is 26.5.

Analysts have pessimistic growth expectations and they do not expect any EPS growth for the next 5 years. Their mean target price is $38, implying 15% upside potential. Recently, Argus upgraded the stock with a target price of $46.

Covedien PLC, a favorite of Jim Cramer, is also favored by Morgan Stanley. Morgan Stanley initiated a new purchase and owns 4.17 million shares. Total share ownership stands at 3.45%. JPMorgan Chase also initiated a new purchase in the last quarter and owns 3.45% of the company. As of Aug 19, Covedien shows a trailing P/E ratio of 13.17, and a forward P/E ratio of 11.15.

Analysts estimate a 12.0% annual EPS growth for the next five years. It paid 1.67% dividend last year, while the profit margin was 16.7%. Covidien had an EPS growth of 52.35% this quarter, and 66.25% this year. It is trading 16.73% lower than its 52-week high. Analysts mean target price of $61 indicates at about 27% upside potential.

The company has a five-star rating from Morningstar. Debts are decreasing for the last four quarters. Debt-to equity is 0.4, below the industry average of 0.6. The Ireland-based company is a compelling long-term profit maker. Analysts have a mean price target of $61, implying 27% upside potential. Its O-Metrix score is 5.62.

LinkedIn, had a successful IPO in the last quarter. LinkedIn shares more than doubled in its first trading day. The shares more than doubled to $94.25, from the IPO price of $45. After its first trading day, the hot stock cooled down to $65 before bouncing back to $110. As of Aug 19, the stock is trading at $79, 36% lower than its 52-weel high and $31% lower than its 52 week low.

The company does not have any solid business plan and analysts do not have any reliable EPS forecasts. Last year’s income was 7 million from revenues of 360 million. Thus, the stock is trading at 20 times more than its revenues. The stock is in a huge bubble, reminding me the tech-stocks of the late 90s.

Mosaic, a David Tepper favorite, is also favored by Morgan Stanley. Morgan Stanley owns 3.79 million shares and increased its holdings by 185.4% in the last quarter. Total share ownership stands at 1.37%. While the company is doing well, the stock is falling off the cliff since mid-March. The year-to-date performance is -17.31%.

Mosaic is a highly profitable stock with a gross margin of 31.41% and a net margin of 25.34%. It has no debt issues. Its current ratio is 3.47 and debt/equity ratio is 0.07. Analysts estimate 9% EPS growth for the next 5 years. Based on their estimates, Mosaic has an O-Metrix score of 4.3.

Philip Morris is a diversified dividend pick for the next 5 years. Morgan Stanley owns 16.27 million shares and increased its holdings by 15% in the last quarter. Total share ownership stands at 0.93%. As an international tobacco producer, it has one of the best product lines in the business and is known as a high quality brand. Marlboro has a brand value of $29.1 billion, higher than any other brand in the business.

Within the last three years, quarterly dividends increased by almost 40%, from $0.46 in 2008, to $0.64 in 2011. The company has enough cash-generating capacity to keep the current yield of 3.72%. The current P/E ratio of 15.75 is little pricey. My FED+ fair value estimate for Phillip Morris is $60. It has an O-Metrix score of 5.08.

Find more information on O-Metrix Grading System here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.