We recently compiled a list of the 7 Best Bank Stocks To Buy in 2024. In this article, we are going to take a look at where Morgan Stanley (NYSE:MS) stands against the other bank stocks.
The largest dip since August occurred in U.S. stocks on September 4, 2024, when the market fell 1.6%. The decline was mostly caused by drops in the technology and energy markets amid economic uncertainty. The market remained volatile, and worries about jobs and economic data mounted, as the August BLS report shows the US created fewer than anticipated jobs in August 2024. Nonfarm jobs grew at 142,000 but remained below the Dow Jones forecast of 161,000. However, the unemployment rate went down from 4.3% in July to 4.2% in August.
Treasury yields dropped to 3.85% as investor attention turned to impending payroll data that may have an impact on the Fed’s interest rate decisions. Despite a historically challenging September, some analysts see possible drops as buying opportunities, citing investors’ controlled inflation and high cash reserves.
Despite the financial volatility, the financial services industry’s long-term outlook is still favorable. As we discussed in our article “25 Biggest Financial Firms in the World,” the financial services industry is projected to grow at a 7.7% CAGR from $31138.82 billion in 2023 to $33539.52 billion in 2024.
According to IBM’s report, financial services are being revolutionized by generative AI, which increases productivity and automates tasks. AI speeds up fraud detection by 50% and decreases transaction processing times by 30%, as per IBM’s survey. While 75% of financial workers expect AI to automate 25% of their duties, it aids in the analysis of market trends in investment management. AI-driven chatbots reduce human labor by 80% and increase query processing accuracy by 85% in customer support. Furthermore, generative AI improves data management in CRM systems by automatically summarizing calls and extracting insights, boosting CRM update efficiency by 30% and saving companies millions of dollars in operating expenses while strengthening client relationships.
Specifically, the global retail banking market was valued at $2.08 trillion in 2023 and $2.21 trillion this year, according to the Precedence Research. The market is projected to grow at a CAGR of 6% to reach approximately $3.97 trillion by 2034, per the research. In 2023, Asia Pacific held the highest share of 34.14% in the market. It is anticipated that North America is predicted to be the second-largest region for the retail banking market during the projection period.
Looking ahead, the 2024 U.S. Banking Industry Outlook Survey by KPMG outlines the major obstacles and prospects that banks face in the face of technological, regulatory, and financial disruptions. Of the 200 banking CEOs surveyed, 65% claimed that generative artificial intelligence is an integral part of their institution’s long-term vision and strategy, and 60% said that their companies have GenAI-enabled cybersecurity in both pilot and production stages. Despite challenges including interest rate risks and geopolitical unpredictability, two-thirds of executives are still confident in their bank’s growth prospects, with 59% predicting inorganic profitability growth. Regulatory intensity dominates focus, with 80% thinking regulatory supervision and enforcement in the area of cyber risk will increase, while 55% of institutions have boosted their resources to manage cyber threats. Moreover, following the Fedwire and SWIFT deadlines in November 2025 and March 2025, respectively, ISO 20022 compliance is a top priority for U.S. banks.
Methodology:
We sifted through holdings of bank ETFs and financial media covering bank stocks to form an initial list of 20 bank stocks. Then we selected the 7 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A panoramic view of a financial institution, representing the number of corporations who trust the company’s services.
Morgan Stanley (NYSE:MS)
Number of Hedge Fund Investors: 62
Morgan Stanley (NYSE:MS) is a multinational investment bank with roots dating back to 1924 through its legacy companies. The company’s three business segments are institutional securities, wealth management, and investment management. Institutional securities account for about 45% of net revenue, wealth management for 45%, and investment management for 10%. The revenue from outside the Americas accounts for about 30% of the total. At the end of 2023, the firm employed about 80,000 employees and had over $5 trillion in customer assets.
Since switching from investment banking to wealth management, MS has established a more reliable business model, which will significantly affect the company’s long-term success. Investment banking is capital intensive, and many banks, particularly European investment banks, have struggled to make appropriate returns in that area and have purposefully reduced their scope. Nonetheless, the investment bank firm has expanded its market share while remaining committed to investment banking. In its institutional securities division, the company saw significant returns on equity of almost 16% in 2020 and 20% in 2021, although over the past ten years, the average was only about 11%.
Despite volatility associated with its Wealth Management division, Morgan Stanley (NYSE:MS) stock has risen by more than 37%, from $70 in January 2021 to $97 today. In 2024, the stock returned just more than 3%, underperforming the broader market’s 14.43% growth by 11.43%.
Revenue during the entire second quarter of 2024 exceeded experts’ forecasts, coming in at over $15 billion, a 12.39% YoY rise. Revenue for the Wealth Management segment increased to $6.8 billion in Q2 2024 from $6.6 billion in the previous year. The bank’s net new asset addition was $36.4 billion, far less than the $89.5 billion it added during the same period last year. Recent high earnings performance has also been attributed to operating leverage.
Ken Fisher’s Fisher Asset Management is the largest shareholder in the company, with 21,814,109 shares worth $2.12 billion.
Overall MS ranks 6th on our list of the best bank stocks to buy. While we acknowledge the potential of MS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.