Morgan Stanley Report- 09/30/2009 - Basic Valuations

September 30, 2009


Morgan Stanley
Equity Research New York, NY

Overview:

Recommendation- Buy
Name of Company: Morgan Stanley
Ticker: MS (NYSE)
Previous Closing Price: $30.88
52 week range: $6.71 - 33.33
Market Cap: $41.97B
P/E: 21.31x
Dividend Yield: 0.60%
Shares Outstanding: 1,359 (mil)
Price Target: $ 33-35/share


Over the last six months capital markets have been turbulent, especially financial equities. Morgan Stanley has rallied 25.61% over the last 3 months.

EPS (earnings per share):
For Morgan Stanley’s fiscal 2nd quarter of 2009, the company reported a loss on basic EPS of $(1.10)/share. That is 182.7% decrease from one year prior. Additionally, forward EPS for the 3rd quarter is expected to grow by 146.4% to $0.51/share. The jump in forward earnings can be attributed to greater than expected profit margins in the investment banking division. Specifically, the robust growth in margins will stem from trading and advisory work. Additionally, the new joint venture of Morgan Stanley Smith Barney will contribute to profits in the company’s flagging Investment Management Division. All three of their prime revenue generating activities has slumped by a total x% from the year prior period due to the global economy. Hence, the ratio will be the best of the year, but compared with its peers Morgan Stanley looks weak.

P/E ratio:
Currently Morgan Stanley is trading at 21.31x earnings (trailing). This is large premium to pay considering the industry is trading at 22.38x earnings and the S&P 500 is trading at approximately 19.81x earnings. Additionally, when examining GS (41.20x trailing), JPM (48.91x), WFC (30.90x), and BAC (28.34x), Morgan Stanley looks cheap from a valuation standpoint.

Growth Estimates:
MS is projected to grow 784.8% next year, compared to the sector growth of 83.2%, and industry growth estimate of 57.1%. Specifically the company expects to see growth in revenues of 36.23% this quarter and growth of 41.7% in 2010. The growth in revenues will come from a pick-up in Mergers & Acquisitions advisory work and Trading. Additional growth in 2010 will stem from these areas as well as the Morgan Stanley Smith Barney LLC joint venture. Also, expect the company to get the most out of its existing businesses via new leadership (James P. Gorman, CEO).


Six Month Chart



Summary:
Overall Morgan Stanley receives a buy rating from Analyze Capital LLC (from a pure valuations perspective). The firm’s equity price has suffered over the past two years from economic, financial, and political crises. However, the company has managed to tide the waters and stay relatively competitive with its peers. Some may argue that they are lagging compared to their peers, though MS has lost many assets and its Cash flow shrunk by almost half, the firm continues to look for new business developments as well as maximizing current businesses.

Author: Pat Ambrus
Contributors: Alexander Lê

FX daily update - 9.30.09

Dollar Slips <-- Click here


Looks like I got out of that dollar position on time. Markets seem to be range bound. I feel a great pop coming ahead. Need some more time to review charts and form a thesis.


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On a side note:

Today's meeting went well, training is progressing well, and we are half way done with incorporation. Once the newspaper publications go out we will be pretty fully formed and ready to start the next step.

-Alex

FX trade from 9.18.09 - 9.28.09

Here's an interesting trade I did from 9/18/09 until today. I traded a 10 day time frame . Back on 9/18/09 I was reading charts and most the major pairs seem over extended (ie. the dollar was oversold). I expected a pull back (ie. dollar strength) and to a degree I was correct and captured a small profit. I closed out in order to reassess with today's huge equity jump.

It seems that this temporary dollar strength did coincide with equity weakness. Perhaps a weak dollar and strong equity thesis has still some momentum left in it. Though it would seem today obviously contradicts that. We will just have to wait for a longer time frame for confirmation.

Certainly the upcoming earning season may skew this short dollar/long equity relation as expectations are set way high and firms have cut cost as much as they can already. Im sure come correlation studies would be useful in this situation.

More on this later...

-Alex

SPX Daily Market Comment - 9.24.09

If the SPX is indeed in a bullish trend, the bulls should be looking for/fighting at 1030 levels. Though it seems that momentum will be able to to push prices in to the 1020's. This would be at around a 5% correction. Perhaps these would be levels for appropriate for re-entry if people believe that the SPX has legs up to 1100.

Much of the future price movements are going to heavily depend on expectations and earnings. This weak dollar/long commodity play maybe a bit overdone at these levels. For the bigger bears key support levels will be found at around 1000+ and 950+ if 1000+ is broken.

I will be assessing charts at each of the 3 main key levels for bulls and bears to form a better thesis.

-Alex

PS: congrats on your 1070 call Pat.

Excerpt From Pat's Trading Journal - 9.16.09

Today I liquidated my position in Natural Gas. I sold all of my shares in The United
States Natural Gas fund @ $11.69/share. Up $1.98 since I took my position or a gain of
20.39%. My reasons are instinctual. I actually did not look at any charts before I exited.
However, I felt the charts may have clouded my vision and told me ton hold on a bit
longer. Yet, My view on the overall direction of the markets is what drove my decision.

I thoroughly believe in a market correction of 5-10% in equities as well as commodities.
THE USD weakness cannot last forever and is a bit exaggerated. I also track the S&P 500
regularly which is overbought as well. The upper bollinger band (2, 20) has been severely
pierced and the RSI is over 70 indicating a correction is coming. IN addition I did some
research on the call options of the SPX for the next month. It was interesting to see heavy
activity about 6000 calls for 1070, but significantly fewer calls for 1080, 1090, and the big
one 1100. I may be wrong bu the market is ahead of itself.

Hence, I am absolutely sure I will be able to enter into Nat Gas, Crude, and the S&P at
much lower valuations during the next 2 weeks. In the mean time I will explore shorting
some financial stocks. My next play may be to short the XLF. More on that in my next
post. As the Great Warren Buffet says, "You can never loose money taking a profit."

Author: Pat Ambrus

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I would like to make a side note that his entry timing was nearly flawless, and his exit was clean. We are currently waiting on a more significant pull back of around 10.5 to assess re-entry points. Overall NGU09 futures have been very volatile which as indeed been reflected in UNG to an extent.

-Alex

Thoughts on Goog and Market movements today - email discussion 9.22.09

Alexander Lê
to Clark, Pat, Kell

show details 9:51 AM (5 hours ago)

http://erikmarketview.blogspot.com/2009/08/goog-i-will-be-waiting-for-you-when.html

Markets opening higher, C up and SGP down. Looks like C is hedging my sgp position decently haha. Looks like it will be an interesting day? Btw did we get a price target on google. This blog here saying 479 resistance; do we concur?

-Alex

--
Alexander Lê
Fordham University
Tel: +001 862 432 2793
Email: le.alex48@gmail.com

Group ANLZ
Tel: +001 8624322793(US)
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Reply


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Patrick Ambrus
Alex, I don't see google stopping anytime soon. It still has room on the upsi...

11:25 AM (3 hours ago)
Patrick AmbrusLoading...
11:25 AM (3 hours ago)
Patrick Ambrus
to me, Clark

show details 11:25 AM (3 hours ago)

Alex,

I don't see google stopping anytime soon. It still has room on the upside. I'd set a price traget of something like $512.00-515. The Fundamentals are very solid. I mean it is trading at 34x forward earnings but that is on par with aapl. Also it is still a growth stock as the company continues to expand its businesses and determine how to make money on the internet. Also, EPS are projected at $21/share for the current year. Analysts predict the stock will grow about another 8.5% this year as industry earnings decline and an estimate of another 15% growth next year. So I would be a buyer even at these levels. Now what we need is an etf where i can play google easier. Markets are interesting today. Early open upside then sell-off, and now maybe a mid day rally if we can sustain volume and momentum. Positive news from Global Markets though.

One Love,
Pat

P.S.

Healthcare ETF's to examine on the bloomy:

Global Healthcare, Pharma and Biotech ETFs
iShares S&P Global Healthcare Sector Index Fund (IXJ)

Broad US Healthcare, Pharma and Biotech ETFs
iShares Dow Jones U.S. Healthcare Sector Index Fund (IYH)
Health Care Select Sector SPDR Fund (XLV)
Vanguard Health Care ETF (VHT)

Foreign Healthcare Sector ETFs
WisdomTree International Health Care Sector Fund (DBR)








Alexander Lê
to Patrick

show details 2:52 PM (0 minutes ago)

Im looking at a chart on spx; my man you might be right on calling a pullback at 1070 + . Downside looks favorable from a technical standpoint. Though given that a bullish trend is indeed in place i only see a pull back to 1030.

Though my thesis on the dollar has not yet unfolded which may coincide with a greater drop in equities if we do see dollar strength.

Daily Forex Market Comments - Sept, 18, 2009

Watch the Dollar closely into next week. Dollar strength is coming and looks like the sterling and Aussie are leading. The EUR is way over extended in these territories.

If this is the case we may see a correction in equities and oil to a significant degree.