Morgan Stanley named a host of stocks this week that it said are must-owns ahead of quarterly reports. Of the 88 companies in the S & P 500 that have reported earnings as of Friday, 76.1% beat analysts’ expectations, according to Refinitiv. CNBC Pro combed through Morgan Stanley’s research to find the top stocks to buy going into earnings. They include Cinemark, WillScot Mobile Mini, Fortinet , McDonald’s and Church & Dwight. Cinemark The movie-going experience is not dead yet, according to analyst Benjamin Swinburne. He is doubling down on shares of the movie theater chain ahead of earnings in early May. “We continue to have conviction in the further growth ahead in theatrical supply from studios and consumer demand for movie going,” Swinburne said earlier this week. In fact, the firm increased its price target to $21 per share from $16 and said its new bull case is $27. There’s much to like about how the first quarter went for theaters, he added. “Films outside the Top 10 in box office revenues saw a ~100% increase YoY and contributed ~28% of 1Q overall box office,” Swinburne wrote. Cinemark stock, which is up 90% this year, still does not reflect the growth that the firm sees coming in 2024. “We continue to see significant upside in the equity as the box office recovers and generally view movie going as counter-cyclical,” he wrote. WillScot Mobile Mini Shares of the mobile office and storage provider are too attractive to ignore, analyst Dillon Cumming said recently. The stock, which is down 6% this year, is being unfairly punished as commercial real estate fears remain prevalent, according to Morgan Stanley. “In recent weeks, we have fielded some concerns around WSC’s ability to remain resilient in an environment where investors are increasingly discounting near-term earnings upside,” he wrote. The firm acknowledged that it sees “weakness in more credit sensitive verticals” like commercial, office and lodging, but for WillScot that should be “more than offset by resiliency in Public, Manufacturing and potentially Power (vis a vis IRA).” Cumming added that WillScot’s non-residential business is not “critical” to the company’s growth, and the firm said the earnings report next week will prove to be a positive catalyst. Despite the choppy trading environment, “we see this pullback as a compelling entry point,” the analyst said. Church & Dwight Morgan Stanley said that the consumer product company’s earnings report, which is expected next week, won’t be a game changer. Still, investors should buy Church & Dwight now as analyst Dara Mohsenian sees “topline upside” heading into the first-quarter results. Morgan Stanley said it likes stocks that can “deliver above-peer, and above consensus/market expectations long-term organic sales growth,” and Church & Dwight fits the bill. Mohsenian upgraded the stock back in January , citing margin expansion and sales growth upside. The stock is up 13% in 2023, but the firm still sees shares as extremely compelling. “Lastly, CHD has among the most defensive portfolios across our coverage, with ~82% of sales in the US, and value-oriented brands with a weighted-average 24% US scanner data price discount to its categories, which positions it well with deteriorating macros driving consumer trade-down,” Mohsenian added. McDonald’s “US sales likely continue to run ahead of consensus and Europe concerns have receded, pushing the stock still higher with relatively little debate at this point, understandably so in our view though we wonder if longer term estimates have gotten a bit ahead of themselves on unit growth, G & A. … Some macro worries in Europe are perhaps fading somewhat and we expect the brand to perform well regardless of the environment, though certainly sales expectations are already quite high for this year.” WillScot Mobile Mini “We see this pullback as compelling entry point for our top pick. … recent weeks, we have fielded concerns around WSC’s ability to remain resilient in an environment where investors are increasingly discounting near-term earnings upside. … Resi construction trends & associated volume impacts are not critical to WSC’s overall growth algorithm. … we continue to expect weakness in more credit sensitive verticals to be more than offset by resiliency in Public, mfg. & potentially Power -with the traditional ~4-6Q lag between tightening lending standards & weakness in the above-mentioned verticals similarly likely to result in Y/Y spending declines later than expected.” Fortinet “Still Relatively Defensible In Uncertain Times. … While not immune to macro pressures, security demand remains resilient so far in 2023, based on our latest CIO survey and Q1 channel checks. We continue to favor consolidators with attractive FCF multiples: PANW, FTNT, CRWD. … We also see FTNT as a growing consolidator of security and broader networking spend.” Church & Dwight “Expect Topline Upside, with GM Upside on the Horizon for Q2. … We are most focused on companies that we believe can deliver above-peer, and above consensus/market expectations LT organic sales growth when excess YoY pricing drops off to more normalized sustained levels. … CHD has among the most defensive portfolios across our coverage, with ~82% of sales in the US, & value-oriented brands with a weighted-average 24% US scanner data price discount to its categories, which positions it well with deteriorating macros driving consumer trade-down.” Cinemark “We continue to have conviction in the further growth ahead in theatrical supply from studios and consumer demand for movie going. … We continue to see significant upside in the equity as the box office recovers and generally view movie going as counter-cyclical. … Films outside the Top 10 in box office revenues saw a ~100% increase YoY and contributed ~28% of 1Q overall box office.”
