Will Morgan Stanley Continue Its Recovery?

With shares of Morgan Stanley (NYSE:MS) trading around $25, 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. 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.

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T = Technicals on the Stock Chart are Strong

Morgan Stanley stock has witnessed its fair share of selling pressure extending back to the 2008 Financial Crisis. The stock is now attempting to reverse its downtrend and shoot for higher prices. 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 (red) 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

37.81%

96%

95%

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

Put IV Skew

Call IV Skew

July Options

Flat

Average

August 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 very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Improving 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

916.67%

294.20%

-147.83%

176.32%

Revenue Growth (Y-O-Y)

17.64%

22.85%

-46.09%

-24.48%

Earnings Reaction

-5.4%

7.85%

-3.78%

-5.28%

Morgan Stanley has seen improving earnings and revenue figures over the last four quarters. From these figures, the markets have expected a little more from Morgan Stanley’s recent earnings announcements.

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P = Average Relative Performance Versus Peers and Sector

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

Morgan Stanley

UBS

Charles Schwab

TD Ameritrade

Sector

Year-to-Date Return

32.58%

13.34%

36.49%

36.35%

28.55%

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

Conclusion

Morgan Stanley provides essential financial services to companies and consumers worldwide. The stock has not done so well since the 2008 Financial Crisis but is now attempting to reverse this trend and head higher. Over the last four quarters, earnings and revenue figures have improved a bit, however, investors have expected more from the company. Relative to its peers and sector, Morgan Stanley has been an average year-to-date performer. Look for Morgan Stanley to OUTPERFORM.

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