Best long-term stocks; Morgan Stanley picks 30 for 2025 (2024)

A bear market for stocks has persisted into the spring, but there are potential cyclical and secular drivers for equity prices on the horizon, according to Morgan Stanley.

Drivers include "more accommodative monetary policy as inflation slows; a more stable starting point for consumer balance sheets; pent-up demand in investment/capex and in certain parts of consumer services; a global growth recovery led by economies that have lagged since the pandemic; the reemergence of positive operating leverage; Artificial Intelligence and its diffusion across sectors; and reshoring," equity strategists Michelle Weaver, Mike Wilson, and team wrote in a recent note.

"The main criterion is sustainability — of competitive advantage, business model, pricing power, cost efficiency, and growth," they said. "We sought to identify the best franchises, not the most undervalued stocks. There was no prerequisite that they be rated Overweight, and we were largely agnostic about their valuations. Our guiding principle was to create a list of companies whose business models and market positions would be increasingly differentiated into 2025."

The stocks are:

1. Alphabet (NASDAQ:GOOGL), Overweight, price target $135, "We see management focused on durably reengineering the cost base and see GOOGL working to improve AI compute cost efficiency at the infrastructure, model and application layer, which builds confidence that margins won't compress over the long term." - SA Quant Rating Strong Buy
2. American Express (NYSE:AXP), Overweight, $186, "Our forecast for slowing growth in marketing and cardmember acquisition expenses should help drive ~430bp operating leverage growth in 2023, its highest in over a decade and a standout among card peers. We expect positive operating leverage growth can continue into 2024 as well, even as top-line growth cools." - QR Hold
3. Blackstone (BX), Overweight, $115, "BX's long-duration locked-up capital, ramping permanent capital initiatives, and over $187b of dry powder should enable the company to patiently wait for opportunities to time exits and deployment." - QR Hold
4. Cheniere Energy (LNG), Overweight, $189, "Over the next several years, resilient FCF should support declining leverage, growing dividends, and share repurchases." - QR Hold
5. Costco (COST), Overweight, $520, "We believe Covid, inflationary pressures on the consumer, and gas price volatility have strengthened COST's value proposition, with likely higher membership stickiness and spending consolidation at COST relative to past years." - QR Hold
6. Eaton (ETN), Overweight, $200, "We estimate that orders can decline by 20%+ and still enter 2025 with above normal visibility/backlog coverage." - QR Buy
7. Eli Lilly (LLY), Overweight, $444, "LLY is positioned to grow revenue at a 10% CAGR from '23-'30 which should expand margins from 28% in 2022to >40% in 2025+, driving EPS growth of 18%, on our estimates." - QR Hold
8. Estee Lauder (EL), Overweight, $282, "Consensus only forecasts 3-4% revenue CAGR's vs. a pre-Covid period looking out over the next two years, seemingly too low if China fully recovers relative to outsized MSD-HSD LT prestige beauty category growth (to which EL is 100% exposed)." - QR Hold
9. Exxon Mobil (XOM), Overweight, $114, "In addition to benefitting from what we expect to be a multi-year period of strong oil & gas prices, XOM's proactive (but still returns focused) decarbonization strategy should help de-risk longer term cash flows and mitigate terminal value uncertainty – offsetting the impact of longer-term erosion in oil & gas demand." - QR Hold
10. Hilton (HLT), Overweight, $168, "With one of the highest in-construction pipelines (18% growth vs. current), we expect the company to deliver 5%+ growth over the next three years (with new 'Spark' brand offering potential for 6-7%)." - QR Hold
11. Intuitive Surgical (ISRG), Overweight, $265, "We see potentially open-ended opportunities to augment robotic systems by developing digital capabilities and data insights, which could further enhance Intuitive's offering and likely provide stickier market share positioning." - QR Hold
12. J.P. Morgan Chase (JPM), Overweight, $173, "We think JPM should continue to take share as 20% of its branch network is <10 years old, significantly higher than industry average of 12% and big bank average of mid-single digits." - QR Hold
13. Liberty Formula One (FWONK), Overweight, $80, "The bull case on F1, in our view, includes exponentially increasing its earnings in the world's largest media market - the US - over the long term." - QR Hold
14. Linde (LIN), Overweight, $365, "We view Linde as an underappreciated self-help story, backstopped by visible EPS growth, pricing power, and balance sheet flexibility." - QR Hold
15. Lululemon (LULU), Overweight, $387, "Taken together, LULU’s ability to take share in an attractive category, coupled with EBIT dollar growth, likely enables consistent EPS growth & pushes shares higher LT." - QR Hold
16. Mastercard (MA), Overweight, $438, "MasterCard is likely to be a key player in the evolution of B2B payments over the next 3-10 years." - QR Hold
17. Microsoft (MSFT), Overweight, $307, "With Microsoft on a path to deliver 5 quarters of accelerating EPS growth from the Q2 trough, we see an opportunity to accumulate MSFT shares, which are significantly undervalued at current levels, in our view." - QR Hold
18. Motorola (MSI), Equal Weight, $260, "With the LMR / push-to-talk market expected to grow for several years and high barriers to entry given LMR's mission-critical nature, we believe MSI has an attractive competitive position in its core market. We also favor MSI's ability to optimize around this market position and generate cash to fund share repurchases / dividends." - QR Hold
19. MSCI (MSCI), Overweight, $543, "Strong tailwinds in the index industry and execution have led to the highest expected organic growth rate in '24 within our coverage (12% vs. 7.5%)."
20. NextEra Energy (NEE), Overweight, $97, "We see prospects for NextEra to be among the leaders in building out these new markets and capturing attractive low-risk returns." - QR Hold
21. Nike (NKE), Overweight, $140, Not "only do we expect the DTC strategy to drive revenue growth as NKE recognizes the full wholesale to retail markup for itself, but it should also improve profitability." - QR Hold
22. Northrop Grumman (NOC), Overweight, $601, "NOC plans to return >100% of FCF to shareholders in 2023and we expect the management team – which we view as best-in-class – to continue to run its shareholder-friendly capital deployment playbook at least through mid-decade." - QR Hold
23. Old Dominion Freight Line (ODFL), Overweight, $340, "ODFL's key strengths include being in the sweet spot of scale, owning more of their real estate footprint than peers, investing in growth through the cycle and exceptional management, that drives ODFL’s best-in-class track record." - QR Hold
24. Prologis (PLD), Overweight, $128, "Favorable supply/demand dynamics should insulate PLD from a slowing macro backdrop." - QR Hold
25. Raytheon (RTX), Overweight, $115, "We see higher defense spending providing a multiyear growth outlook, though see this growth taking time to materialize and acknowledge short-term supply chain disruptions." - QR Buy
26. Thermo Fisher (TMO), Overweight, $670, "We firmly believe in TMO’s ability to outgrow its peers and end markets driven by a combination of increasing exposure to high-growth verticals (specifically biopharma, following the Patheon/PPD acquisitions) and geographies (including China),as well as a relentless focus on share gains fueled by the breadth, depth and reach of their portfolio." - QR Hold
27. T-Mobile (TMUS), Overweight, $175, "Ongoing synergy realization and growing scale should allow the company to expand EBITDA service margins to the mid-50% range over the long-term vs. 43% in 2022." - QR Strong Buy
28. UnitedHealth (UNH), Overweight, $587, "We believe the resiliency of UNH’s diversified businesses across Health Insurance (UnitedHealthcare), Health Provider (OptumCare), Pharmacy Services (OptumRx),and Data Analytics (OptumInsight) will generate long-term double-digit earnings growth with high visibility as a best-in-class vertically integrated MCO in a highly defensive category." - QR Hold
29. Visa (V), Overweight, $288, "Trends toward digitization (mCommerce and eCommerce) over the years should allow Visa’s growth to outpace overall global PCE growth, while any rise in inflation should serve as a tailwind to the business, with ~2/3 of revenue tied to volumes." - QR Hold
30. Yum Brands (YUM), Overweight, $155, "Broadly, brand positioning, menu, and store footprints are in better shape and digital channels are built out, helping KFC and PH compete in any economic environment and any country." - QR Hold