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Long and Short Ideas From Morgan Stanley


When big money makes the picks, you need to dig a little deeper...


In a useful piece on January 9 from Mother Morgan (MS), it listed its favorite longs, shorts, and pairs:

Top 10 Long Ideas

  • Aetna (AET) 55.97
  • Altria (MO) 74.90
  • AT&T (T) 40.89
  • Coca Cola (KO) 61.85
  • Colgate Palmolive (CL) 78.78
  • Emerson Electric (EMR) 53.85
  • General Dynamics (GD) 86.00
  • Microsoft (MSFT) 34.38
  • Newmont (NEM) 52.42
  • Nike (NKE) 61.74

Top 10 Short Ideas

  • Abercrombie & Fitch (ANF) 74.65
  • American Express (AXP) 49.14
  • Best Buy (BBY) 47.61
  • Caterpillar (CAT) 68.53
  • CSX Corp (CSX) 40.73
  • Cummins (CMI) 59.18
  • Freeport-McMoRan (FCX) 99.71
  • Research in Motion (RIMM) 103.35
  • Target (TGT) 48.08
  • Wachovia (WB) 35.46 E

Top 5 Pair Trade Ideas, Long / Short

  • ConocoPhillips (COP) / NRG
  • WalMart (WMT) / Target
  • Emerson Electric / Cummins
  • Microsoft / Research in Motion
  • Newmont / Freeport-McMoRan

Here are a few of my comments:

Long Ideas:

  • With the presidential election coming, I'd be reluctant to get too heavily involved in the Aetnas (AET) of the world. I am not suggesting that the change in administration will be bad – it may well be good – for this group, but that's the ultimate invisible catalyst.

  • I also have never understood why anyone would want to own slow growers like KO and CL trading at 2+ PEG's, and multiples higher than the market. Don't get me wrong: if we are in a recession / bear market, the latter names will likely work, but only as a function of money flows leaving other stocks for these "safe-havens," but I've never been interested in buying on that thesis.

  • I went through the basic valuation levels of all the other long suggestions and I don't have much to quibble with.

Short Ideas and Pair Ideas:

  • Shorting BBY with Circuit City (CC) heading for the dust bin seems a tad aggressive to me; and never underestimate the resources of obsessed gadget lovers.

  • Similarly, with RIMM heading for China sooner rather than later and the stock trading below its growth rate, I'd be very leery of shorting at these levels.

  • My sense is that it is too late to short WB: if there is a total financial wipe-out shorting the whole group via an ETF would seem a much more prudent approach.

  • I really like the long WMT / short TGT pair, but I am not sure I'd short TGT outright.

  • I like MSFT but if I wanted to pair it off, it would not be with RIMM.

  • The NEM / FCX make a ton of sense to me; I think relative to its price copper is as dangerous a long as I can find and I'd be very surprised if it outperforms gold.


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No positions in stocks mentioned.
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