Can Morgan Stanley Move Higher?

With shares of Morgan Stanley (NYSE:MS) trading around $29, 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 is reportedly in discussions with the Federal Reserve for the bank to buy back more stock in 2014, the Wall Street Journal reports. Morgan Stanley bought back $500 million of its own stock this year for the first time since the financial crisis. Morgan Stanley is looking to raise its return on equity, which is still behind other banks despite strong earnings reports in recent quarters that have raised the stock price 52 percent thus far this year. The Journal noted that it’s unclear if the buyback amount will be more or less than this year.

T = Technicals on the Stock Chart Are Strong

Morgan Stanley stock been trending higher in recent months. The stock is moving higher this year and looks ready to continue. 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

23.47%

10%

10%

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

Put IV Skew

Call IV Skew

November Options

Flat

Average

December 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 minimal 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 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

78.57%

41.38%

916.67%

294.20%

Revenue Growth (Y-O-Y)

7.44%

22.49%

17.64%

22.85%

Earnings Reaction

2.25%

4.37%

-5.40%

7.85%

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

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

52.14%

25.67%

64.01%

60.31%

51.53%

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

Conclusion

Morgan Stanley is a financial services company that provides service to consumers and companies across the globe. The company is buying back its own stock this year for the first time since the financial crisis and discusses with the Federal Reserve for the bank to buy back more stock in 2014. The stock has been trending higher in the last year and looks ready to continue. Over the last four quarters, earnings and revenues have been on the rise which has left investors pleased about earnings announcements. 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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