Morgan Stanley reveals 11 high-conviction stocks where analysts expect an upside earnings surprise to drive share prices materially higher

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  • Morgan Stanley’s Michael Wilson believes stock valuations will fall as earnings rise in Q2.
  • The equity strategist recommended investors emphasize stock selection and a “defensive quality tilt.”
  • Analysts revealed 11 high-conviction stocks they believe will surge on Q2 earnings surprises.
  • See more stories on Insider’s business page.

On Monday, investors held their collective breath as the Dow Jones Industrial Average witnessed its largest daily drop of 2021, plummeting more than 700 points.

Fears over the spread of COVID-19’s delta variant, falling oil prices, and rising inflation hit equities hard during the trading session. On Tuesday, stocks largely recovered their losses, but some market watchers fear more downside could be on the horizon.

Peter Essele, the head of investment management for Commonwealth Financial Network, told Insider that if increased cases of the delta variant lead to more lockdowns, it could be the “death knell” for the economic recovery.

Essele fears investors will start to wonder if markets could be in for a case of the dreaded stagflation that the US economy witnessed in the 1970s.

Morgan Stanley’s Chief US Equity Strategist Michael Wilson isn’t nearly as bearish on global economic prospects, but he still recommends clients emphasize a “defensive quality tilt” in the current market environment.

At the beginning of 2021, Wilson predicted earnings would surprise to the upside throughout the year, but argued valuations would come down to offset most of the positive earnings revisions. So far the strategist has only been half right, as earnings are up roughly 20%, but price-to-earnings ratios have only come down around 5%.

Still, Wilson is sticking to his guns, arguing valuations will fall in the coming months as earnings rise. Because of this, the strategist believes stock selection will be key to outperformance over the second half of 2021.

In order to help clients with the process of picking the wheat from the chaff, Morgan Stanley revealed 11 stocks where its research analysts expect an upside surprise to earnings will drive the stock materially higher in the near term.

The 11 names that could present serious price appreciation potential are listed below, as well as the stocks’ tickers, sectors, price targets, earnings dates, and Morgan Stanley analysts’ potential earnings catalysts.

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