A smart investor is a patient investor, in the game for the long haul. Markets legend Warren Buffett is known for advocating long-term holdings — and so is banking giant Morgan Stanley. The bank’s annual ‘Vintage Values’ report identifies the company’s top stocks for ‘buy and hold’ over a one-year horizon.
The current list of vintage values has a lot to say on the subject, but a select few stand out. First, all their choices are mid-cap or large-cap stocks. Second, their Vintage Values selection focuses on high-quality names. And finally, these names trade at a bargain compared to the market.
There is one more important point about the Morgan Stanley Vintage Value List. In the 14 years since they started publishing these polls, the list has tended to go further. S&P 500. The 2022-2023 list, its predecessor, beat the index by 941 basis points over 12 months.
So let’s take a look at just what Morgan Stanley investors should buy and hold. Here are two of the company’s vintage values.
NextEra Energy, Inc. (NO)
The first Vintage Value pick we look at is NextEra, a renewable energy company and important part of the clean energy industry. The Next ERA has between $85 billion and $95 billion in infrastructure improvements over the next two years and is working to generate 67 gigawatts of power. NextEra is owned by Florida Power and Light Company, the largest electric utility in the US and provides power to more than 12 million people in the state of Florida.
In addition to its Florida operations, NextEra has assets in several other states, including zero-emissions nuclear power plants in Wisconsin and New Hampshire. The company is a leader in wind and solar power generation and operates several renewable energy facilities in Texas.
This is all good, but NextEra sees the future of power generation in the hydrogen energy sector. The company is developing and financing green hydrogen energy projects with US government agencies, investing up to $20 billion in hydrogen capital projects, and plans to generate up to 15 gigawatts of renewable hydrogen power by 2026.
Finally, the company’s income has been increasing in recent years. In its last quarter report, for 2Q23, NextEra reported revenue of $7.35 billion, beating estimates by $1.18 billion and up nearly 42 percent year-over-year. The company’s bottom line, non-GAAP EPS of 88 cents, was 6 cents per share better than expected.
All of this leads Morgan Stanley’s David Arcaro to have a positive outlook for the company. The analyst wrote: “As we look to low-income concerns, strong renewables demand, supply chain optimization and green hydrogen upside… hydrogen projects require deep skill sets in many areas where NEE has advantages. We expect NEE to be a leader in the green hydrogen market regardless of Treasury offerings.
Arcaro’s comments support an Overweight (i.e. Buy) rating on NEE, and the price target is now set at $90, suggesting ~30% downside potential on a one-year timeline. (To see Arcaro’s history, Click here)
Overall, this stock has attracted 10 recent reviews from Street, with an 8-to-2 breakdown supporting a consensus rating of Strong Buy over states. The stock’s trading price of $69.28 and average price target of $84.90 suggest the stock will have ~23% potential upside over the next 12 months. (look out NextEra stock forecast)
Medtronic Pvt (MDT)
The next stock we look at from the Morgan Stanley Vintage Value list is Medtronic, a medical device company with a wide range of products targeting a variety of conditions. The company has a global footprint, and is a leader in healthcare technology, describing its mission as ‘attacking the most challenging health problems facing humanity’.
Some basic numbers illustrate the scale and reach of Medtronic’s operations. The company’s products have helped more than 74 million patients over the years, and looking forward, Medtronic has more than 210 active clinical trials testing new devices and products. In its 2023 fiscal year, which ended last April, Medtronic reported making $2.7 billion worth of R&D investments, a testament to its confidence in its approach. And, of particular note to trailblazing investors, the company paid out $3.6 billion in dividends to shareholders in fiscal 2023.
The division is worth a closer look. Medtronic has already declared its dividend for fiscal 2Q24. Earnings of 69 cents per common share were up 1-cent from the prior quarter, or 3.4 percent annualized. The company It has a dividend history stretching back to the 1970s.
Medtronic last reported Q1 earnings for fiscal 2024, and reported top-line growth of 4.5% year-over-year. Revenue of $7.7 billion beat forecasts by more than $144 million. The company’s non-GAAP EPS, at $1.20 per share, was 9 cents better than expected. In a positive move forward, Medtronic trimmed its earnings guidance to a range of $5.08 to $5.16 per share, or a 7-cent increase at the midpoint. This compared to consensus EPS guidance expectations of $5.05.
Morgan Stanley’s Patrick Wood lays out several reasons for the bullish outlook on this stock: “We see MDT’s pipeline from an innovation perspective (eg Inceptive, 780G, Simprera, Spiral, Micra, Pulse Select, etc.). , and general margins in the right direction at c. Hit 115bps despite heavy S&OP and supply chain work. In fact, gross margin to c. 68% worth c. 12% for group revenue alone, and we expect MDT to deliver more consistent performance by strengthening supply and production.
“At a sub-15x calendar ’24 P/E, despite what we expect to be steady MSD organic growth and potential, c. 200b/s upside to margins, with leveraged positions, we remain bullish on MDT shares,” concluded Wood.
Bullish means an overweight (i.e. buy) level and the $104 price target indicates a 27% one-year potential. (For Wood’s story, Click here)
Overall, Medtronic gets a moderate Buy rating from analysts. The 16 recent analyst ratings include 8 buys, 6 holds and 2 sells, with an average price target of $94.80, indicating a ~~16% upside from the current trade price of $81.96. (look out MDT stock forecast)
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Disclaimer: The opinions expressed in this article are those of the featured analysts only. The content is intended for informational purposes only. It is very important to do your own analysis before making any investment.