It’s a 'historically opportunistic' time for stock picking, says Morgan Stanley. Here are the bank’s picks.

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It’s a 'historically opportunistic' time for stock picking, says Morgan Stanley. Here are the bank’s picks.

investing ideas :: 2025-10-21 :: source - marketwatch

By Barbara Kollmeyer

Stock-specific risks have been rising in recent months — and that’s creating a “historically opportunistic stock picking environment,” according to strategists at Morgan Stanley.

A team led by Mike Wilson, chief U.S. equity strategist, made the point while discussing prospects for stocks and potential opportunities in a note published Sunday. Another plus for stock pickers right now is a dispersion of earnings revision breadth that has climbed into earnings season, they said. In other words, analysts’ opinions on company earnings prospects are becoming more varied.

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Research has shown that positive revisions can drive stock gains. “Put simply, companies that deliver upside earnings surprises tend to consistently outperform companies that disappoint their shareholders with earnings that fall short of expectations,” Matt Stucky, chief portfolio manager for equity at Northwestern Mutual, explained to clients earlier this year.

Morgan Stanley’s screen of stocks, which they shared with clients last week, focused on those with “strong earnings revision momentum.” The top five the strategists shared in a previous note are Pinterest Inc. PINS, Reddit Inc. RDDT, Take-Two Interactive Software Inc. TTWO, Burlington Stores Inc. BURL and Carvana Co. CVNA:

The Morgan Stanley team offered some updates on different sectors from their U.S. analysts — such as restaurants, where they say pricing is restrained and promotional activity high; and gaming and leisure, where the cruise side is seeing healthy demand. Elsewhere, analysts expect improvements in the next six months for freight-related companies.

See: What restaurant patrons are telling us about the state of the U.S. economy

For tech, they see strength in AI continuing, with bottlenecks focused on traditional storage, server and memory. In software, the debate lies on whether trends have been stable in the third quarter so far. Within internet companies, the analysts say “agentic AI — [which] can make autonomous decisions — is picking up in e-commerce.”

As for consumer finance, the bank’s analysts said they see “continued degradation at the low end, consumer/subprime level, as we’ve seen for a while, but it’s not spreading.” Dual worries over U.S.-China trade negotiations and credit risk for regional banks weighed on stocks last week. Equity futures indicated a positive start for markets on Monday as concerns on the trade front appeared to be ebbing.

Wilson and his team said they won’t declare an “all-clear on the risk of a further near-term correction” until they see a “clearer trade de-escalation” from both the U.S. and China, more ample liquidity, such as reserves and global liquidity in the dollar, and more stability in company earnings per share revisions.

Read on: There’s one key piece of chart evidence missing to call for a stock-market correction