In this piece, we will take a look at Morgan Stanley’s best stock picks and the top 15 stocks to own for 2025.
The tail end of 2024 is seeing a market shift in the stock market as the Federal Reserve has finally signaled that interest rate cuts are on the horizon. This means that cheaper capital might be on the horizon, with the rate cuts coming just as the labor market starts to feel the pinch through lower growth.
It also means that consumer spending can pick up if economic output remains robust. For investors, it creates an opportunity to gain an early foothold into stocks that could benefit from the new environment. On this front, investment banks have been analyzing the situation diligently for quite some time.
One bank that’s out with regular reports is Morgan Stanley. It releases monthly reports that cover the latest trends in the economy and the stock market. The bank’s August report covered some recent trends. It shared that the labor market was one of its most closely watched economic indicators as it was “vulnerable to a further deceleration in economic activity.” To explain why, the bank shared that US excess labor supply, that is the demand minus supply, was at pre pandemic levels that had sustained since 2018. This implies that employers no longer have the incentive to offer lucrative pay packages to attract workers, which in turn leads to less money flowing into the economy to contribute to inflation.
MS added that the three month national unemployment average was 0.5% above the 12 month average, which is a warning bell for the economy. This is because according to one of the most widely used recession indicators, the Sahm Rule, a recession has started once the rate is 0.5% or higher than the 12 month average. MS is not the only one that is ringing warning bells on this front, as JPM also confirmed in early August that the rule was triggered when the unemployment rate jumped to 4.3%. However, it did add that we “do not think a recession is imminent” and “remain constructive on U.S. equities despite increased volatility, and see opportunity to lock in rates before they fall.”
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Returning to MS, it also sees an opportunity in the battered commercial real estate market. It cites the commercial real estate cap rate, which is the rate of return based on its income generation capability, to argue that commercial real estate valuations are currently depressed enough to warrant an investment. The office real estate market had a cap rate of 9% in March 2024 as per MS, for a two percentage point and three percentage point lead over retail and residential real estate, respectively. As for the stock market, the bank shared in August that it still prefers large cap stocks (an important point as you’ll find out when you check out the stocks in this piece).
The bank believes that small caps “are lower in quality, more volatile and carry greater exposure to cyclical sectors relative to large cap,” meaning that their outperformance “requires economic growth acceleration with lower interest rates.” MS warned that “softer economic data may constrain” small cap performance. In terms of data, it argues that small cap performance is dependent on bond yields. This data set shows that when we assume an index value of 100 for US small caps had led benchmark S&P stocks except the Magnificent 7 at a time when 10 year US bond yields were around 1.5% in July 2021, the indexed returns dropped to 90 in July 2023 when the yields were approximately 4.3%.
August’s final week was pivotal for the stock market as Fed Chair Jerome Powell finally signaled that the time for interest rates had come. “The time has come for policy to adjust,” stated Powell at Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks,” he added.
Following the Fed Chair’s remarks, MS was out with its September report. Commenting on the economy, the bank shared that it does not “believe the economy is set to accelerate over the next few months, which makes the S&P 500 around 5650 our near-term upper bound. At the same time, the economy is not collapsing, which makes 5200 attractive and 5350 seem fair. We plan to trade around the ranges.” MS also shares key details for the unemployment rate, which are important when analyzed in tandem with the Sahm Rule. It comments that higher immigration “may be supporting a higher labor force participation rate, which in turn would contribute to a higher reported unemployment rate. From this perspective, a higher unemployment rate is not signaling weakness but rather an increase in the labor supply that would help bring inflation down without affecting growth.”
Subsequently, the bank believes that the percentage of total unemployed accounted for by people who lost their jobs (Job Losers) and the number of total layoffs (Challenger Layoffs) might be more relevant when analyzing the labor market. Job Losers currently sit at 50%, while Challenger Layoffs are less than 50,000 after having jumped to 100,000. In short, this paints a more robust labor market picture that might not signal a recession as the Sahm Rule might have suggested.
Remaining bearish on small caps, it believes that the “window for small cap outperformance is too narrow – requiring “Goldilocks” growth and inflation.” This sentiment is also echoed in the bank’s Vintage Values 2025 stock report, where it comments that its strategists “currently recommend avoiding small caps, and Vintage Values 2025 reflects that view. It skews heavily toward large-cap stocks: 80% of the names are classified as either mega-cap or large-cap.” Mind you, this sentiment was also echoed in the 2024 report, verbatim.
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Our Methodology
To make our list of MS’ top stocks for 2025, we ranked MS’ Vintage Value 2025 stock picks by their share price percentage upside based on the bank’s price target.
For these stocks, we also mentioned the number of hedge fund investors. 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).
15. GE Vernova Inc. (NYSE:GEV)
Number of Hedge Fund Holders In Q2 2024: 92
Share Price Target Upside: -2%
Share Price Target: $220
GE Vernova Inc. (NYSE:GEV) is a diversified clean energy company that operates in the wind, solar, nuclear, gas and other power generation industries. The diversified product portfolio allows the firm to target emerging power generation avenues, such as solar and wind, and maintain a strong presence in established clean energy avenues namely nuclear and gas. In fact, GE Vernova Inc. (NYSE:GEV)’s installed gas generation capacity as of July 2024 was a whopping 53 gigawatts, which made it one of the biggest players in this industry. The gas segment allows the firm a sizeable moat, as it ensures that GE Vernova Inc. (NYSE:GEV) earns through refurbishment and maintains a strong global brand presence. Since it’s an industrial product company, the firm also benefits from future cash flow visibility through order backlogs. For the first half of 2024, GE Vernova Inc. (NYSE:GEV)’s total revenue was split evenly across service and equipment revenues. The two segments accounted for $7.6 billion and $7.8 billion, respectively. Overall, GE Vernova Inc. (NYSE:GEV) can benefit from strong AI demand for electrification products and a potential uptick in the demand for renewables as interest rates drop.
Carillon Tower Advisers mentioned GE Vernova Inc. (NYSE:GEV) in its Q2 2024 investor letter. Here is what the fund said:
“GE Vernova is a global electric power company that was recently spun out of a much larger industrial conglomerate. The company’s shares performed well in their first quarter as a standalone compa- ny, primarily as a result of the increasing outlook for power demand growth, both domestically and abroad. We believe GE Vernova is well positioned to capitalize on this growing trend across its various products and services, but most notably within its large-scale gas turbine equipment and related services, as well as in its high-volt- age electrical transmission products.”
14. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders In Q2 2024: 96
Share Price Target Upside: 2%
Share Price Target: $82
Walmart Inc. (NYSE:WMT) is the global leader in brick and mortar retail which serves the market through more than 100,000 locations worldwide. Its leadership position is evident through a fortress balance sheet and income statement, which reflect a whopping $252 billion in assets and $665 billion in revenue. The operational heft means that Walmart Inc. (NYSE:WMT) can set the terms for merchants and attract buyers to its platform through low prices. It also provides the firm with unmatched and enduring stability. However, Walmart Inc. (NYSE:WMT), along with other traditional retailers, is facing the heat from the eCommerce industry which is dominated by players like Amazon. They enjoy a much larger market presence due to the internet and have the potential to reach far off customers that Walmart Inc. (NYSE:WMT) might be unable to target with its stores. Consequently, along with same store sales, Walmart Inc. (NYSE:WMT)’s hypothesis hinges on its ability to boost eCommerce sales via the Marketplace division and attract merchants to the platform through advertising services. The picture is also complicated by the fact that the eCommerce market is dominated by diverse firms, like Amazon, and specialty players who only deliver groceries like Instacart.
Walmart Inc. (NYSE:WMT)’s management commented on its Marketplace performance during the Q2 2025 earnings call:
“For marketplace and Walmart fulfillment services, in the U.S., we’ve now seen more than 30% growth in each of the past four quarters, as we continued to increase seller counts on the platform by double-digits. Growth from sellers using our Marketplace Fulfillment Services increased 800 basis points in Q2, surpassing 40% penetration. Sales in fashion, toys, hard lines, and home all grew more than 20%. Outside the U.S., we’re seeing similar trends as we enhance our capabilities in product assortment. For example, Flipkart delivered double-digit top line growth and more than doubled the number of units that delivered same day. In Mexico, we grew marketplace items and sellers by around 60%.
And in Chile, we launched cross-border trade, adding sellers from China and the U.S. to our local marketplace offering. Within data analytics and insights, Walmart Data Ventures continues to see strong results as clients value the insights we provide, bringing together consumer behavior with omnichannel sales and inventory trends across our platform. Our client base has increased nearly 200% versus last year as we launch new tools and enter new markets, including the expansion of our Walmart Luminate product in Mexico in May.”