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) 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) 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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