We recently created a list of Morgan Stanley’s Best Stocks For Economic Recovery: Top 9 Cyclical Stocks.In this article, we’ll look at how Marathon Petroleum Corporation (NYSE: MPC ) stands against other stocks.
As 2024 draws to a close, the stock market has surpassed everything. The driving theme of the year has been artificial intelligence as investors and the media poured heavily on AI companies every word throughout the earnings season. On the AI side, the Federal Reserve has been focused on adjusting its interest rate to match the performance of the labor market and inflation. Finally, November ends with the results of the 2024 US Presidential Election confirming the victory of Donald Trump.
These three primary stock market drivers have short and long term implications for equities. AI companies need to ensure that their margins are solid and that the technologies they have invested billions of dollars in can generate profits. The Fed’s interest rate decisions determine funding for institutional investors, venture capitalists, and the large corporate sector. Finally, the administration’s upcoming policies towards sectors such as energy, banking, and clean energy can shape the macroeconomic environment either for their benefit or for their detriment.
Therefore, it is important to see what the experts are saying in this volatile stock market. Before this, the investment bank Morgan Stanley has a lot of research going on. Starting from the head of the bank’s Apped equity team Andrew Slimmon, he believes that the results of the Presidential elections are unlikely to affect the trends of the S&P stock index. According to Slimmon, if the market was on the rise heading into the election, then “it is above 3 and 6 months later 85% of time, regardless of the election results. “He adds that the market has been in a growth year again, and looking at history, November and December are the two strongest months in the market.
The MS researcher believes that although this period of two months is the strongest in history, in history, it is also “next the worst two months of the year.” Since September and October did not follow this pattern, something important in history is inconsistent. However, Slimmon is optimistic, going on to explain that “November-December will repeat its strong historical performance once we get past the noise surrounding the election.” Four important reasons are behind this expectation. According to Slimmon, November sees the highest number of corporate purchases and more stock funds flowing into the market, there will be clarity in the decisions of firms, and the interest rate of the Fed has decreased, no matter how small, it will always be big for the market Analyst he also circles back to his view that pre-elections continue after the election, and shares that communication services, materials, money are some sectors that have done well before the elections.
Jim Caron, MS’ CIO of Portfolio Solutions Group, shares his take on the remaining unknowns in the stock market now that the election is over. Looking at the Federal Reserve’s path forward, he shares that the rate-setting process has become a “risk-preserving act” for the central bank. This is because the Fed must carefully balance between ensuring that interest rates are in a neutral area as defined by R* or the rate that keeps the economy balanced. Currently, Caron believes that rates are in a restrictive environment, and the biggest risk that the Fed is controlling is the labor market situation which “may be even worse if the policy rates are limited as it happened.” This leads Caron to conclude that the Fed can reduce rates to between 4% and 3.7%, and on a more optimistic note, this “may be the case even if the decline in inflation seems to be slow perhaps for a short time because if they don’t.” t to cut rates now, they may not be able to if there are more unfriendly inflation prints ahead.”
What does this balance between cutting prices to keep the labor market strong while keeping an eye on inflation mean for investors? Well, according to the MS analyst, in the worst case that the central bank “changes their policy from cutting to legs,” the 10-year bond yield should range between 3.9% and 4.6%. This does not only mean that “having bonds can also be a good hedge against loans,” believes Caron, but he adds that equities “should continue to receive support and value from a stable and low bond yield area.” He concludes by explaining that MS’ portfolio realignment includes the move “to increase exposure to equity at the time of closing and to go into leveraged debt, December will carry its value beyond the normal end of the year, will set the stage for how the Fed’s policy can move the markets.”
Finally, before we move on to our list of Morgan Stanley’s top cyclical stock picks, the bank’s November themes are also worth noting. In terms of equities, the bank offers the November 2024 Beat report that “Funds offer an attractive risk/reward on both the base-case, soft-landing perspective and the potential risk when inflation returns and pushes prices higher.” Naturally, any market report that does not mention artificial intelligence would be incomplete, and for MS, utility stocks are among the key beneficiaries of AI. It explains that “utility companies are at the beginning of what will be a multi-year investment cycle designed to increase their capacity to generate electricity and service new demand.”
Like Goldman Sachs, MS also believes there is great potential in the equal-weighted benchmark S&P index. The data shows that when compared to the index’s long-term average 12-month forward consensus EPS of about 2%, the EPS of the market cap weighted index is 5.9%. This shows that the cap-weighted index is fully valued, but, for the equal-weighted index, the consensus forward estimate is 1.5% which shows undervalued. This difference leads MS to conclude that “S&P equity-weighted EPS provides a clean comparison and shows the level of cyclical EPS at the top.”
In addition to the topic of financial stocks and the benefits that come from creative intelligence on utilities, MS shares that financial stocks “offer an attractive risk/reward profile.” This expectation is due to the sector’s view of interest rates. In its data, the bank shows that when compared to commodities, industries, and energy stocks, as well as the spread between 10-year and 2-year bonds, financial stocks offer as much as 15-points of performance on the basis of. 100 points. It adds that financial stocks also lead the stocks of Citi’s US Economy Surprise Index to start moving higher. As for the equipment, the bank shares that the positive “prediction of the data center construction helped to trigger the operation of the equipment related to other protective circuits.”
For other financial stocks, you can check 10 Best Local Bank Accounts to Invest in Now and 10 Best Diversified Bank Stocks to Buy Now.
Our Methodology
To create our list of Morgan Stanley’s top cyclical stocks, we put the bank’s latest list of favorite stocks with the number of hedge funds that had bought their shares in Q3 2024.
Why do we like the stocks that hedge funds invest in? The reason is simple: our research has shown that we can outperform the market by following the best pictures of the best quality hedge funds. Our quarterly portfolio strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, outperforming its benchmark by 150%. (see more information here).
An oil pipeline stretches for miles, meaning the transportation of oil to the market.
Number of Hedge Fund Owners in Q3 2024: 39
Marathon Petroleum Corporation (NYSE: MPC) is an American oil and gas company that operates refining and transportation services and sells refined products in the market. As a result, its economy depends on global oil demand, economic activity, and crude oil prices. The reliance on economic activity makes it no surprise that Marathon Petroleum Corporation (NYSE: MPC ) shares are up 3% year-to-date. As of H1 2024, 96% of the firm’s revenue was related to its refining operations, and among these, most come through sales to foreign parties. While Marathon Petroleum Corporation (NYSE: MPC) shares rose 8% as the company earned revenue in the third quarter beating the EPS analyst of $0.98 by posting $18,000 on the back of higher consumption and refining, the company’s future performance depends on the same consumption and demand for local and international oil.
Marathon Petroleum Corporation (NYSE:MPC) management shared their outlook for the future during the Q3 2024 earnings call. Here’s what they said:
“We are not wavering in our commitment to safe and reliable services, commercial efficiency and competitive prices that produce strong benefits and give us the opportunity to provide leading investment in each of the regions in which we operate. To provide this, we will be optimizing our portfolio to produce efficiency now and in the future while continuing to invest invest in our people’s future.
All MPC in 7th place on Morgan Stanley’s list of cyclical stocks that are the best in economic recovery. While we acknowledge the potential of MPC as an investment, our confidence lies in the belief that AI stocks hold great promise of delivering high returns and doing so within a short period of time. If you are looking for an AI stock that promises more than MPC but that trades less than 5 times its earnings, check out our report about cheap AI stock.
READ THE FOLLOWING: 8 Best Wide Moat Stocks to Buy Now and30 Most Valuable AI Stocks According to BlackRock.
Disclosure: None. This article was originally published on Insider Monkey.
