Morgan Stanley’s Slimmon Recommends Netflix, Amazon, United Rentals, Waste Management

Key Takeaway

• Morgan Stanley's Andrew Slimmon remains bullish on stocks, citing declining inflation and positive earnings reports as key drivers.
• Slimmon recommends a balanced portfolio with growth picks like Netflix (NFLX) and Amazon (AMZN), and value picks like United Rentals (URI) and Waste Management (WM).
• He cautions that tougher year-over-year CPI comparisons could lead to market corrections in the near future.

Morgan Stanley's Bullish Stance

Andrew Slimmon, Senior Portfolio Manager at Morgan Stanley Investment Management, remains bullish on U.S. equities despite potential market volatility. Slimmon attributes his optimism to the way inflation is measured, noting that the high inflation numbers from 2022 and 2023 make year-on-year comparisons easier, naturally leading to a downward trajectory in inflation. This trend has allowed the Federal Reserve to adopt a "less hawkish" stance, which has been well-received by the stock market. Last week's April consumer price index (CPI) report showed a slight easing in inflation, with a 3.4% year-on-year increase, aligning with market expectations. Following the CPI release, futures tied to major stock indexes rallied, and Treasury yields fell, with futures traders increasing the implied probability of a Federal Reserve rate cut in September.

However, Slimmon warns that as we approach the May, June, and July CPI numbers from last year, the year-over-year comparisons will become more challenging. "I’m worried that we could have a realization that the CPI, the trajectory is no longer down, and it’s a little stickier," Slimmon told CNBC. He anticipates a potential market correction but believes the market will be higher by year-end. For now, Slimmon advises maintaining a balance of growth and value stocks, highlighting Netflix and Amazon as his growth picks, and United Rentals and Waste Management as his value picks.

Goldman’s Top Internet Picks

Goldman Sachs' top technology analyst, Eric Sheridan, has identified Amazon, Alphabet, Meta Platforms, Expedia, and Instacart as his top internet stock picks post-Q1 earnings. Sheridan notes that despite a challenging macroeconomic environment, the internet consumer is continuing a trend from 2023 into the first half of 2024, with consumer spending growing year-over-year and a shift towards services over goods. This trend has led investors to favor "scaled players with a proven track record," capable of growing revenue, maintaining operating margins, and returning capital.

Amazon has seen a 21% year-to-date increase, driven by a recovery in Amazon Web Service (AWS) revenue and strong e-commerce performance in North America. Alphabet is favored due to strong advertising demand and recovery from concerns about long-term search viability. Meta Platforms is expected to benefit from similar advertising trends and its AI potential. Sheridan states, "[Meta’s] Q1 earnings report signaled a vocal commitment to AI and metaverse investment cycles with short-term revenue trajectory less a focus when compared to long-term potential of positioning the company for success across AI led platform/product shifts."

Expedia is expected to benefit from the normalization of online travel to pre-COVID levels, with artificial intelligence seen as a potential tool to reshape the industry and improve customer conversion. Instacart, which has surged 39% this year, is also poised to benefit from the consolidation toward fewer online services and platforms. Sheridan notes, "CART is taking a different approach in evolving towards a multi-vertical platform and announced a partnership with UBER in May to bring UBER’s restaurant delivery on CART’s platform, effectively marking its entrance in the restaurant category in addition to its core grocery business."

Analyst Calls on Major Stocks

Tuesday saw several significant analyst calls on major stocks. Morgan Stanley reiterated its overweight rating on Tesla, emphasizing that "Elon needs Tesla more than ever before." Raymond James initiated coverage of Caesars Entertainment at strong buy and Penn Entertainment at outperform, citing improved digital profitability and higher leverage. JPMorgan initiated Structure Therapeutics at overweight, highlighting the underappreciated opportunity for oral GLP-1s.

Baird downgraded Toast to neutral from outperform, stating that the risk/reward is now more balanced. Citi initiated Ferrovial at buy, expressing bullishness on the Dutch infrastructure and transportation company. Evercore ISI reiterated Nvidia as outperform, suggesting investors buy the stock ahead of its earnings report. Piper Sandler downgraded Sunnova to neutral from overweight due to concerns about liquidity and looming maturities.

Redburn Atlantic Equities upgraded Disney to neutral from sell, mainly due to valuation. Citi reiterated Dell as buy, raising its price target by 36% to $170 per share, citing greater conviction in Dell’s ability to gain market share in the growing AI market. Barclays upgraded HP to equal weight from underweight, noting "unit stabilization" and some hope around AI PCs.

Additional Analyst Insights

Morgan Stanley upgraded Micron to equal weight from underweight, raising its price target to $130 per share from $98. The firm acknowledged underestimating the economic and narrative elements of AI memory. Morgan Stanley also named Hasbro a top pick, expecting a strong upward inflection in the revision curve with toy demand bottoming and momentum in profitability improvements.

Goldman Sachs reiterated its buy rating on Salesforce, expressing bullishness ahead of its earnings next week. Jefferies initiated coverage on several steel companies, including U.S. Steel and Cleveland-Cliffs, citing improving demand. Morgan Stanley named Progressive a top pick, highlighting attractive valuation and underappreciated growth and margin.

UBS upgraded Universal Health Services to buy from neutral, citing enhanced visibility into earnings upside. JPMorgan upgraded Huya to overweight from neutral, expressing bullishness on the China game streaming platform. Evercore ISI reiterated TJX Companies as outperform, naming it a top five pick in retail. Seaport initiated Amphenol as buy, expressing optimism about the electronic connector manufacturer.

Street Views

• Andrew Slimmon, Morgan Stanley Investment Management (Bullish on stocks):

  "One of the reasons I have bullish on equities since 2022 has been on how inflation is measured."

• Andrew Slimmon, Morgan Stanley Investment Management (Cautiously Optimistic on market conditions):

  "So I’m worried that we could have a realization that the CPI, the trajectory is no longer down, and it’s a little stickier. I think that’s when you get kind of a correction. That’s why I believe the mark will be higher by year end, I wouldn’t be surprised you get a more substantial correction."

• Andrew Slimmon, Morgan Stanley Investment Management (Neutral on growth and value names):

  "I think it will make sense to get a little more defensive going into the summer but it’s too early for that. Stick with a balance of growth and value names."

• Andrew Slimmon, Morgan Stanley Investment Management (Bullish on Netflix and Amazon):

  "When you think about Netflix, Amazon, you’re talking about two [companies] that give a lot of value to their customers for a relatively reasonable price."
  "On Netflix... there are plenty of places that they can expand beyond their dominance. I bet on smart management."