Morgan Stanley (MS) is a financial services stock. The allure of MS is its perceived value: like many financial companies it trades at a cheap price-to-book multiple. There is much attention paid to financials as a potential contrarian, value investment thesis. Should retail investors snatch up financial stocks like MS?
Not necessarily. As a financial institution, the book value of its assets is questionable because of mark-to-model accounting. Valid comparisons between MS and non-financial stocks can be made by using other price multiples like the price-to-sales, the price-to-earnings multiple, or even dividend yield (dividend-to-price). Fortunately, there are non-financial stocks which appear to be better values than MS:
Ticker | Company | Industry | P/E | P/S | Div Yield |
Advance America, Cash Advance Centers | Credit Services | 8.73 | 0.83 | 3.1% | |
Cardinal Health, Inc. | Drugs Wholesale | 15.34 | 0.14 | 2.1% | |
CEC Entertainment Inc. | Restaurants | 13.09 | 0.84 | 2.4% | |
Darden Restaurants, Inc. | Restaurants | 15.17 | 0.82 | 3.5% | |
Ennis Inc. | Office Supplies | 11.32 | 0.82 | 3.8% | |
Ingles Markets Inc. | Grocery Stores | 10.22 | 0.12 | 3.8% | |
Nash Finch Co. | Food Wholesale | 8.72 | 0.07 | 2.4% | |
National Healthcare Corp. | Long-Term Care Facilities | 11.55 | 0.83 | 2.6% | |
Nutrisystem, Inc. | Consumer Services | 15.63 | 0.75 | 6.2% | |
PPG Industries Inc. | Specialty Chemicals | 13.18 | 0.94 | 2.5% | |
Staples, Inc. | Specialty Retail, Other | 10.77 | 0.41 | 2.7% | |
TESSCO Technologies Inc. | Electronics Wholesale | 9.99 | 0.21 | 3.3% | |
Wayside Technology Group, Inc. | Computers Wholesale | 10.78 | 0.24 | 5.0% | |
MS | Morgan Stanley | Investment Brokerage | 16.25 | 0.97 | 1.0% |
Each of these stocks is cheaper than MS based on dividend yield, P/E, and P/S multiples (trailing 12 months). Moreover, these five companies all score well in terms of quality and future growth prospects. They each have 10 fiscal years of positive returns to equity and have are all categorized as "safe" according to the Altman Z-score, indicating that they are not alarming bankruptcy risks:
Ticker | Altman Z-score | 10-Year Average ROE | EPS growth past 5 years | EPS growth next 5 years |
AEA | 4.92 | 8.7% | -5.1% | 15.0% |
CAH | 5.60 | 16.2% | 0.2% | 12.1% |
CEC | 3.64 | 24.5% | 5.8% | 11.0% |
DRI | 3.07 | 23.1% | 8.8% | 12.3% |
EBF | 4.60 | 11.0% | 1.8% | 17.0% |
IMKTA | 3.01 | 10.5% | -1.7% | 13.3% |
NAFC | 5.61 | 8.5% | 5.3% | 15.0% |
NHC | 3.47 | 13.8% | 7.5% | 12.0% |
NTRI | 8.00 | 38.9% | 13.0% | 14.0% |
PPG | 3.30 | 15.6% | 10.1% | 10.7% |
SPLS | 4.09 | 16.4% | 3.1% | 11.4% |
TESS | 5.63 | 9.5% | 19.0% | 15.0% |
WSTG | 5.71 | 10.3% | 10.7% | 22.0% |
MS | *N/A | 7.4% | -26.7% | 10.7% |
*Financial firms cannot be assigned an Altman Z-score
Based on lower price multiples, these stocks are cheaper than MS at current market prices. Better yet, they are all quality stocks. Rather than restrict yourself to controversial financial stocks, consider a mix of these thirteen securities as a more attractive alternative. They are quality firms with better metrics for growth and value. Clearly Morgan Stanley is not the only fish in the sea, and it does not appear to be the tastiest either.
Please read the article disclaimer for this article and Altman Z-score calculations.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
