Will Morgan Stanley Continue Its Surge Higher?

With shares of Morgan Stanley (NYSE:MS) trading around $27, is MS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Morgan Stanley is a global financial services company that, through its subsidiaries and affiliates, provides its products and services to a range of clients and customers, including corporations, governments, financial institutions, and individuals. The company operates in three segments: institutional securities, global wealth management group, and asset management. Morgan Stanley provides financial advisory and capital-raising services; equity, fixed income, and alternative investments; and merchant banking services. It participates in an industry that powers most other types of businesses around the world.

Morgan Stanley shareholders were all smiles Thursday after the investment bank posted a billion-dollar profit and said it will repurchase up to 500 million shares of its stock. As economies continue to grow, Morgan Stanley is at the stem of that growth, providing the products and services required to form solid operating bases well into the future.

T = Technicals on the Stock Chart are Strong

Morgan Stanley stock has been on a strong uptrend over the last several months. The stock is now trading near price levels not seen since 2010. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Morgan Stanley is trading above its rising key averages which signal neutral to bullish price action in the near-term.

MS

(Source: Thinkorswim)

Taking a look at the implied volatility and implied volatility skew levels of Morgan Stanley options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Morgan Stanley Options

18.59%

0%

0%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Morgan Stanley’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Morgan Stanley look like and, more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

41.38%

916.67%

294.20%

-147.83%

Revenue Growth (Y-O-Y)

65.82%

17.64%

22.85%

-46.09%

Earnings Reaction

4.37%*

-5.40%

7.85%

-3.78%

Morgan Stanley has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have been optimistic about Morgan Stanley’s recent earnings announcements.

* As of this writing.

P = Average Relative Performance Versus Peers and Sector

How has Morgan Stanley stock done relative to its peers – UBS (NYSE:UBS), TD Ameritrade (NYSE:AMTD), Charles Schwab (NYSE:SCHW) — and sector?

Morgan Stanley

UBS

TD Ameritrade

Charles Schwab

Sector

Year-to-Date Return

45.40%

16.65%

55.56%

49.03%

34.17%

Morgan Stanley has been an average relative performer, year-to-date.

Conclusion

Morgan Stanley is a provider of valuable financial services to growing business and consumers worldwide. The company has recently issued an earnings report that has sat well with the markets. The stock has been surging higher over the past several months and is now trading at prices not seen for a number of years. Over the last four quarters, investors have remained optimistic as earnings and revenue figures have been rising. Relative to its strong peers and sector, Morgan Stanley has been an average year-to-date performer. Look for Morgan Stanley to continue to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.