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Morgan Stanley's 8 Best Stock Ideas for 2011

BOSTON ( TheStreet) -- Best Ideas, stock picks that Morgan Stanley (MS) says have the most favorable risk-reward profiles, is now just over a year old.

Last year's selections fared well. Though not recommended as a portfolio, several of the Best Ideas stocks delivered solid gains since publication in October 2009. Here's a closer look at the recommendations and their performances.

The S&P 500 has gained 17% since Oct. 1, 2009.

Baker Hughes (BHI) has risen 30%.

Bank of America (BAC) has fallen 30%.

Celgene (CELG) has increased 0.1%.

Danaher (DHR) has climbed 37%.

Hewlett-Packard (HPQ) has dropped 9%.

Suncor Energy (SU) has advanced 4.6%.

Textron (TXT) has appreciated 30%.

Union Pacific (UNP - Get Report) has soared 58%.

Walt Disney (DIS) has increased 36%.

In sum, five of the original nine picks have outperformed the S&P 500. Here is a look at Morgan Stanley's eight Best Ideas heading into 2011.

Below, the stocks are ordered by their predicted upside, from modest to mammoth.

8. BorgWarner (BWA - Get Report) manufactures and sells engineered automotive systems.

Fundamentals: BorgWarner's 12-month sales have soared 44%. Third-quarter profit quintupled to $107 million, or 87 cents a share, as revenue grew 37% to $1.4 billion. The operating margin widened from 2.5% to 8.7%. BorgWarner has $432 million of cash and $1.3 billion of debt, equal to a quick ratio of 1.1 and a debt-to-equity ratio of 0.5. Management is forecasting $2.3 billion of net new powertrain business between 2011 and 2013.

Valuation: The stock trades at a trailing earnings multiple of 25, a forward earnings multiple of 18, a book value multiple of 3.4 and a cash flow multiple of 17, 28%, 46%, 76% and 41% discounts to auto components peer averages. Its PEG ratio, a measure of value relative to growth, of 0.1 reflects a 90% discount to estimated fair value. Morgan Stanley's bullish scenario entails a 51% stock-price rise to $100. Its bear-case target is $45.
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