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In a note published on Thursday, the firm highlighted 30 stocks that its analysts believe would thrive even if the global economy grows slower than they forecast.
To compile the list, Morgan Stanley first screened for stocks it had previously classified as growth stocks for 48 straight months, which have also generated positive revenue every quarter for the past three years. They then selected stocks they rate as “overweight” or “equal weight.”
Additionally, they looked at stocks where analysts forecast a compound annual growth rate (CAGR) between 2015 and 2018 of at least 15% for earnings per share (EPS), and of at least 10% for revenue.
“We believe these companies all have exposure to longer-term growth drivers, such as a sustainable competitive advantage, a multi-year product cycle, market share gains, or pricing power,” Morgan Stanley said.
Note: The EPS growth is the projected compound annual growth rate (CAGR) from 2015-2018, the PE estimates are based on 2016 Morgan Stanley research expectations, and the PEG ratio refers to the price-earnings to growth ratio which is an indicator of the stock’s valuation. Growth stocks with lower PEGs are generally considered cheaper.
Table of Contents
ToggleAlexion Pharmaceuticals
Ticker: ALXN
EPS growth: 21%
PE 2016: 27.4
PEG ratio: 0.9
Comment: “We believe Soliris growth will be driven by ongoing geographic expansion in currently approved indications,as well as approval in 2017 for neuromyelitis optica (NMO),an indication that could add $600M+ to Soliris’ revenue base by 2020E,” said Morgan Stanley’s Matthew Harrison.
Source: Morgan Stanley
Align Technology
Ticker: ALGN
EPS growth: 32%
PE 2016: 40.5
PEG ratio: 1.0
Comment: The maker of invisible dental aligners should reap the benefits of: “(1) collaborations with Dentsply Sirona and SmileDirectClub, (2) increased digital technology use among dentists, and (3) international market penetration,” said Steve Beuchaw.
Source: Morgan Stanley
Alphabet
Ticker: GOOGL
EPS growth: 17%
PE 2016: 24.4
PEG ratio: 1.2
Comment: “As the dominant player in paid search, Google continues to benefit from secular growth as advertising dollars shift into digital,” wrote Brian Nowak. “Google also owns YouTube, the leader in online video advertising, an industry we believe will grow by over 70% from 2016 to 2018 to ~$16bn in the US alone.”
Source: Morgan Stanley
American Tower Corp.
Ticker: AMT
EPS growth: 33%
PE 2016: 137.1
PEG ratio: 1.0
Comment: The company has the largest publicly traded portfolio of cell phone towers, and its “leading global footprint positions it to benefit from the rollout of 3G and 4G networks in emerging countries,” said Simon Flannery.
Source: Morgan Stanley
Athenahealth
Ticker: ATHN
EPS growth: 25%
PE 2016: 74.2
PEG ratio: 2.4
Comment: “Athenahealth looks well positioned to benefit from a fragmented market within the segment, where many hospitals are struggling financially and could benefit from a lower-cost SaaS [software as a service] system,” said Ricky Goldwasser.
Source: Morgan Stanley
Atlassian Corporation
Ticker: TEAM
EPS growth: 11%
PE 2016: 71.5
PEG ratio: 7.9
Comment: “Atlassian’s goal is to expand from technical to non-technical teams to become a broader team collaboration platform, opening up a large market opportunity – our bottom-up analysis suggests almost $40B,” said Sanjit Singh.
Source: Morgan Stanley
Blue Buffalo Pet Products
Ticker: BUFF
EPS growth: 18%
PE 2016: 32.2
PEG ratio: 1.6
Comment: “Our growth forecast is underpinned by: (i) favorable sub-category exposure in the wholesome natural segment, (ii) expansion opportunities in the US and new channels in vet/international ,and (iii) positive demographics given BUFF’s skew towards younger pets should support market share gains over time, the confluence of which does not appear to be fully factored in valuation,” said Dara Mohsenian.
Source: Morgan Stanley
Celgene
Ticker: CELG
EPS growth: 25%
PE 2016: 18.1
PEG ratio: 0.6
Comment: “Celgene’s current top-line drivers are Revlimid, Abraxane, Pomalyst,and Otezla,” said Matthew Harrison. “Revlimid remains the company’s key franchise, and we estimate it will continue to be the primary driver of Celgene’s ~20% yearly top-line growth in the near term.”
Source: Morgan Stanley
CyrusOne
Ticker: CONE
EPS growth: NM
PE 2016: 189.2
PEG ratio: NM
Comment: “The rise in cloud computing provides incremental growth opportunities as cloud providers outsource the building of data center facilities to specialized providers like CyrusOne,” said Simon Flannery.
Source: Morgan Stanley
Edwards Lifesciences
Ticker: EW
EPS growth: 20%
PE 2016: 41.6
PEG ratio: 1.7
Comment: “Edwards Lifesciences is a leader in the rapidly growing transcatheter heart valves market,” said David Lewis. “There is substantial room for market expansion given the recent approval into the intermediate risk patient population and there is longer-term potential for expansion into lower-risk patients.”
Source: Morgan Stanley
Equinix
Ticker: EQIX
EPS growth: 33%
PE 2016: 240.1
PEG ratio: 1.9
Comment: “With its expansive global footprint, Equinix offers an unique set of third-party retail co-location facilities for enterprises to house mission-critical, latency-sensitive applications,” said Simon Flannery.
Source: Morgan Stanley
Ticker: FB
EPS growth: 47%
PE 2016: 32.4
PEG ratio: 0.5
Comment: “As the world’s largest social network of ~1.1bn daily users worldwide, we believe Facebook is capitalizing on the secular shift from traditional to online advertising,” said Brian Nowak.
Source: Morgan Stanley
Five Below
Ticker: FIVE
EPS growth: 22%
PE 2016: 30.2
PEG ratio: 1.2
Comment: “With no direct #2 look-alike competitor, we see FIVE continuing to expand productively in new and existing markets, capitalizing on its value-focused offering,” said Vincent Sinisi.
Source: Morgan Stanley
Inphi Corporation
Ticker: IPHI
EPS growth: 34%
PE 2016: 32.2
PEG ratio: 0.7
Comment: “We see potential for significant upside for Inphi from a new data center optical product cycle (PAM4), which has been validated by Microsoft’s announcement that they would adopt the company’s ColorZ technology,” said Joseph Moore.
Source: Morgan Stanley
Lululemon
Ticker: LULU
EPS growth: 18%
PE 2016: 26.9
PEG ratio: 1.3
Comment: “We see LULU’s sales momentum extending, particularly with International markets and men’s apparel still highly under-penetrated,” said Kimberly Greenberger.
Source: Morgan Stanley
Monster Beverage
Ticker: MNST
EPS growth: 24%
PE 2016: 37.5
PEG ratio: 1.2
Comment: “We believe valuation does not fully reflect MNST’s long-term EPS growth potential,and we expect upside vs. consensus in 2017/18 driven by solid US trends behind innovative launches and continued channel expansion, as well as a significant international sales acceleration and margin boost as the benefits of the Coca-Cola deal ramp up,” said Dara Mohsenian.
Source: Morgan Stanley
Netflix
Ticker: NFLX
EPS growth: 70%
PE 2016: 413.3
PEG ratio: 1.7
Comment: “Higher global broadband penetration should increase NFLX’s addressable market, driving member growth and providing further opportunity given NFLX’s global presence,” said Benhamin Swinburne. “Longer-term, we see the ability for NFLX to drive ARPU (average revenue per user)growth, particularly given increased original programming traction.”
Source: Morgan Stanley
Palo Alto Networks
Ticker: PANW
EPS growth: 65%
PE 2016: 78.4
PEG ratio: 0.9
Comment: “Palo Alto is an effective fast follower, driving our confidence that Palo Alto will be able to sustain growth in an evolving security market,” said Keith Weiss. “With the strong billings base and the continued drive towards higher operating margins, we remain confident in the durability of our FCF estimates, which looks for 30%+ growth through FY19.”
Source: Morgan Stanley
Proofpoint
Ticker: PFPT
EPS growth: NM
PE 2016: NM
PEG ratio: NM
Comment: “Our estimates look for 20%+ billings growth through FY18, which assumes continued share gains in email security, modest traction in newer solutions such as advanced malware protection, and no revenue contribution from some of its emerging products such as social media monitoring,” said Melissa Gorham.
Source: Morgan Stanley
Red Hat
Ticker: RHT
EPS growth: 17%
PE 2016: 34.8
PEG ratio: 1.7
Comment: “Red Hat appears better positioned than most infrastructure rivals as workloads shift to public and private cloud environments, where Linux garners higher market share,” said Keith Weiss.
Source: Morgan Stanley
SBA Communications
Ticker: SBAC
EPS growth: NM
PE 2016: 77.7
PEG ratio: NM
Comment: “SBAC is the smallest of the three US tower companies and intends to transfer to a REIT this year,” said Simon Flannery. “SBAC benefits from increasing demand for mobile data in the US and Latin America.”
Source: Morgan Stanley
ServiceNow
Ticker: NOW
EPS growth: 58%
PE 2016: NM
PEG ratio: NA
Comment: “ServiceNow is a disruptive share-gainer with a well established position in the $6B market for IT Service Management (ITSM) and increasing traction in the $10B+ IT Operations Management market (ITOM) with an expanding product set addressing an additional $44B of market opportunity,” said Keith Weiss.
Source: Morgan Stanley
Splunk
Ticker: SPLK
EPS growth: 94%
PE 2016: 176.4
PEG ratio: 0.9
Comment: “Machine data analysis represents a large untapped value opportunity for enterprises, one that we believe Splunk is well-positioned to address, both on premise and in the cloud,” said Melissa Gorham.
Source: Morgan Stanley
Starbucks
Ticker: SBUX
EPS growth: 15%
PE 2016: 28.6
PEG ratio: 1.6
Comment: Starbucks remains a best-in-class large-cap growth story in retail,and we estimate continued mid-single-digit same store sales growth underpinning mid-teens EPS growth,” said John Glass.
Source: Morgan Stanley
TPI Composites
Ticker: TPIC
EPS growth: NA
PE 2016: 30.9
PEG ratio: NM
Comment: “As the largest US-based independent manufacturer of composite wind blades, with global scale capabilities and industry leading OEM customers, we believe TPIC is well positioned to benefit from the structural trends of both the growth in global wind demand and the growth in the wind blade outsourcing,” said Stephen Byrd.
Source: Morgan Stanley
Veeva Systems
Ticker: VEEV
EPS growth: 23%
PE 2016: 63.8
PEG ratio: 2.1
Comment: “A Vertical SaaS leader in the Life Sciences space, Veeva should be able to parlay its leadership in Sales Force Automation CRM into new market segments like Data Management and Content Management,expanding its total addressable market and increasing the company’s lead as the industry’s preferred Cloud software provider,” said Stan Zlotsky.
Source: Morgan Stanley
Visa
Ticker: V
EPS growth: 18%
PE 2016: 29.2
PEG ratio: 1.3
Comment: “Visa is a prime beneficiary of the ongoing secular shift from cash to electronic forms of payment,globally,” said James Faucette.
Source: Morgan Stanley
Workday
Ticker: WDAY
EPS growth: NM
PE 2016: NM
PEG ratio: NA
Comment: “With continued enhancements to the core HR and Financials solutions and Workday in aggressive pursuit of edge use cases in both product markets, we think the company is positioning itself for a much longer and sustained growth trajectory (albeit at potentially lower rates) than investors expect,” said Keith Weiss.
Source: Morgan Stanley
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