With U.S. equities set to perform very well in 2024, many more companies are likely to sell additional stock in themselves to the public. Meanwhile, the number of initial public offerings should also jump. Since Morgan Stanley (NYSE:MS) generates a great deal of its revenue from underwriting such deals, MS stock should get a big lift from these developments. Additionally, interest rates are poised to drop in 2024, causing bonds to climb and benefiting Morgan Stanley’s fixed income business. The improved rate outlook is already boosting merger and acquisition deals, which will boost Morgan Stanley’s financial results in 2024. Meanwhile, the valuation of MS stock is attractive, and it has a sizable dividend yield. I recommend that investors who are looking to add a relatively conservative value name to their portfolios buy MS stock.
MS Will Benefit From Stocks’ Strong Performance
With the Fed’s interest rate hikes over and rate cuts still in the cards, stocks should perform well in 2024. Moreover, with the rate picture much more certain in 2024 than in 2023. Many growth names that struggled in 2023 should do very well this year, as investors become less nervous about the macro outlook.
I’m certainly not the only one who expects the stock market to thrive this year. Fisher Investments’ Ken Fisher, University of Pennsylvania’s Jeremy Siegel, Fundstrat’s Tom Lee and CNBC’s Josh Brown are also very bullish on this year’s outlook.
Given the less risky path for stocks in 2024, I expect more firms to carry out secondary offerings and IPOs. Since MS makes a sizable amount from underwriting such deals, it will be boosted by this dynamic.
Moreover, strong equities and a favorable interest rate outlook are expected to boost spending by Morgan Stanley’s wealthy clients. This could boost the revenue of the firm’s large Wealth Management business.
Lower Rates Will Lift MS Stock
MS generates a significant amount of revenue from helping to facilitate mergers and acquisitions. Starting last quarter, merger and acquisition activity began rebounding amid the more benign rate environment. Specifically, in Q4 deals worth over $2 billion “hit their highest levels since Q2 2022.”
That trend appears to be continuing in recent weeks. Hewlett Packard Enterprise (NYSE:HPE) recently agreed to acquire telecom equipment maker Juniper Networks (NYSE:JNPR) for $14 billion. Additionally, Nano Dimension (NASDAQ:NNDM) proposed to buy fellow 3D printer player Stratasys (NASDAQ:SSYS), while natural gas giants Chesapeake (NYSE:CHK) and Southwestern Energy (NYSE:SWN) agreed to merge.
As I noted earlier, lower rates will cause bond prices to rise, boosting the company’s fixed income business, which generated $1.43 billion of revenue in 2022.
The Bottom Line on MS
Morgan Stanley will benefit tremendously from changes in the macro environment in 2024. Indeed, analysts on average expect the firm’s earnings per share to climb to $6.54 in 2024 from $5.38 last year.
Meanwhile, the stock has an attractive forward price-earnings ratio of 13.6 and a hefty dividend yield of 3.76%.
While I don’t expect MS to outperform the market by tremendous amounts this year, I do think that it’s a good name for anyone looking for a relatively conservative way to benefit from the more benign rate environment this year.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.