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Morgan Stanley Research analysts published a report titled “50 for 2105”on Dec 15, 2011. They have chosen its top stocks for 2015 by trying to identify companies “whose business models and market positions would be increasingly differentiated by 2015.” In choosing these long term investment ideas they have looked for “best franchises” and not just undervaluation. In filtering these stocks the focus was on sustainability of “competitive advantage, business model, pricing power, cost efficiency and growth.”

Here are best long-term ADRs picked by Morgan Stanley:

Rio Tinto (NYSE:RIO) has been given an Overweight rating by Morgan Stanley. The company’s main focus is on iron ore which generates 45% of its revenue. Prices of iron ore are holding up better than other base metals. The current market conditions with a deficiency in the seaborne market have given Rio a preferred defensive exposure. MS analysts think that the market has not completely appreciated the company’s ability to generate a strong free cash flow.

Currently, its stock is trading at $48.76 and is expected to go north of $92.67 in the next 12 months. Earnings per share are expected to grow at 6.1% over the next two years against an industry median of 13.6% while sales growth of 6.9% is expected against the industry median of 8.1%. The company’s P/E ratio of 6.1x is expected in 2012 against the industry median of 6.6x. Billionaire Jim Simons' Renaissance Technologies initiated a brand new position in RIO during the third quarter.

BHP Billiton Plc (NYSE:BHP), a company given an Overweight rating by Morgan Stanley, is believed to be capable of self-funding growth for over a decade. They argue that the company has a strong fiscal position with a capital management strategy that entails growth in funds, maintenance of balance sheet position, paying progressive dividends, and returning surplus cash.

Currently, its stock is trading at $70.80 and earnings per share are expected to grow at 8.8% over the next two years against an industry median of 32% while sales growth of 11.1% is expected against the industry median of 11%. The company’s P/E ratio of 8.7x is expected in 2012 against the industry median of 7.6x. Scout Capital had the largest stake in the company among the 350 hedge funds we are tracking.

Infosys Limited (NYSE:INFY) has been given an Overweight rating by Morgan Stanley because of the company’s high revenue productivity and a strong EBIT per employee ($49k and $14k respectively). MS says that amongst its competitors, Infosys has the highest profit per employee. Its high EBIT margins have remained constant at around 28-29% and they are industry leading margins too. The company’s business model has helped it absorb negative movements in the economy.

Infosys is trading at $49.35 and is expected to go north of $60.44 in the next 12 months. Earnings per share are expected to grow at 21% over the next two years against an industry median of 15% while sales growth of 23.2% is expected against the industry median of 17.4%. The company’s P/E ratio of 15x is expected in 2012 against the industry median of 10.1x while its EV/EBIT ratio is 10.5x versus the industry median of 8x.

AmBev (ABV), despite the competitive advantages of the company, has been given an equal-weight rating by Morgan Stanley. It has still made it to the top 50 stocks for 2015 because of its sustainable and competitive business model. AmBev has roughly 70% of the market share in the beer business in Brazil. MS analyst argues that the company has accelerated its pace of innovation by coming up with brand extensions. Its management is highly aggressive, seeking to generate cash flows and capital returns.

AmBev’s stock is currently trading at $36.02 and is expected to reach $37.79 in the next 12 months. Earnings per share are expected to grow at 10.9% over the next two years against an industry median of 16%, placing it in the 20th percentile. Sales growth of 9.1% is expected against the industry median of 11%, placing it in the 40th percentile. The company’s P/E ratio of 19.5x is expected in 2012 against the industry median of 17.9x.

CNOOC (NYSE:CEO) has been given an Overweight rating by Morgan Stanley because it benefits from a higher price oil environment. MS says that the company is faced with less policy risk and has a larger control over its returns. Morgan Stanley expects the company to perform better than its competitors, with overseas projects being accretive to growth. The start of its deep-water gas production project will also increase the value of its stock.

Currently, its stock is trading at $173.41 and is expected to go north of $230.26 by the end of next year. Sales growth of 2.6% is expected against the industry median of 2.9% while the company’s P/E ratio of 8.1x is expected in 2012 against the industry median of 8.4x, placing it in the 40th percentile. EV/EBIT is expected to be 4.8x against the industry median of 6.3x.

InterContinental Hotels (NYSE:IHG), the world’s largest hotel operator, has been given an Overweight rating by Morgan Stanley. They believe that its market position helps it achieve greater performance, have higher returns, and more hotel signings than its peers with demand for hotels increasing in-line with GDP. The company returned roughly $4 billion to its shareholders over a period of 5 years, from 2003-08. Morgan Stanley expects the company to be able to return cash to shareholders due to a strong balance sheet and free cash flow.

Its stock is currently trading at $17.24 and is expected to go north of $24.93 by the end of next year. Earnings per share are expected to grow at 7.7% over the next two years against an industry median of 10.9% while sales growth of 5.3% is expected against the industry median of 3.4%.P/FCF is expected to be 15.3x against the industry median of 16.7x while EV/EBIT is expected to be 10.4x against the industry median of 10x.

Siemens (SI) is a global business that caters to emerging markets, power plants, hospitals, and other companies. Morgan Stanley expects infrastructure investments to be highly popular in the medium term but has given the company an equal-weight rating. Siemens has significantly improved over the years, increasing its ROIC from 11.5% in 2005-10 to an estimated 23.2% in 2015 due to a shift in its management focus. Morgan Stanley is of the opinion that Siemens has the greatest “share price potential of any of the engineers we cover.”

Currently, its stock is trading at $94.90 and is expected to reach $119.03 in the next 12 months. A sales growth of 4.9% is expected against the industry median of 4.2%. The company’s P/E ratio of 11.6x is expected in 2012 against the same industry median. EV/EBIT is expected to be 7.4x against the industry median of 8x. EBIT margin is expected to be the same as that of the industry at 10.8%.

TSMC (NYSE:TSM) has been given an Overweight rating by Morgan Stanley because it is the leader of the foundry industry in technology. As PCs begin their shift to ARM by 2013, with processors shrinking to less than 28nm, TSMC is likely to see an increase in profits well beyond that year. MS says that the company has a solid balance sheet that showed relatively little debt in the third quarter of this year. Solar and LED are likely to give TSMC greater opportunities of increasing their profits.

The stock of TSMC is trading at $12.71 and is expected to go north of $14.68 in the next 12 months. Earnings per share are expected to grow at 17.6% over the next two years against an industry median of 12.4% while sales growth of 15.8% is expected against the industry median of 9%. The company’s P/E ratio of 12.1x is expected in 2012 against the industry median of 13.5x while an EV/EBIT ratio of 10.9x is expected against the industry median of 10.5x. Former vice president Al Gore's hedge fund Generation Investment Management had nearly $75 million invested in TSM at the end of September.

Disclosure: I am long MS.

Source: Best Long-Term ADRs Picked By Morgan Stanley