8 Stocks Morgan Stanley Is Betting On

BOSTON (TheStreet) -- Ford (F) and PepsiCo (PEP) are among eight stocks on Morgan Stanley's (MS) Best Ideas list. The top picks may rise as much as 89%.

Morgan Stanley says its Best Ideas are the New York-based investment bank's leading investment insights, presenting highly differentiated research, favorable risk-reward profiles and clear catalysts. The firm's stock-selection committee argues against reconstructing their picks as a portfolio, though, as each investment idea is chosen based on its own merit and without consideration of other picks.

Even so, the Best Ideas has produced several big winners since the list's original publication Oct. 1, 2009, including Disney ( DIS) and Baker Hughes ( BHI).

Morgan Stanley is diligent in updating its selections. Last month, for example, Morgan Stanley removed ARM Holdings ( ARMH) from Best Ideas after an impressive run in the stock. Morgan Stanley still gives ARM an "overweight" rating. Similarly, the bank still views Apple ( AAPL) highly, although the firm deleted the stock from the list in December 2010.

The following eight stocks currently on Morgan Stanley's list are arranged in order of potential upside, based on the firm's 12-month price target and closing prices as of May 11.


8. Union Pacific ( UNP)

Company Profile: Union Pacific operates the Union Pacific Railroad Co., offering freight transportation to 23 states in the U.S.

Current Share Price: $103.97 (May 11)

Potential Upside: 8% based on a price target of $112

Morgan Stanley's Take: Though Union Pacific missed consensus estimates for the first quarter due to fuel price lag impact and weather disruptions, the result was consistent with Morgan Stanley analyst William Greene's expectations heading into the quarter.

Based on several positives through the end of 2011, including reaccelerating pricing, a reversal of the fuel surcharge impact, improving margins and a commitment by management to repurchase shares and raise the dividend, Greene says Union Pacific shares currently offer an attractive entry point for his longer-term thesis.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

7. BorgWarner ( BWA)

Company Profile: BorgWarner is a global supplier of automotive systems and components, mainly for powertrain applications.

Current Share Price: $77.96 (May 11)

Potential Upside: 13% based on a price target of $88

Morgan Stanley's Take: Morgan Stanley analyst Adam Jonas says BorgWarner's secular thesis is still intact, but recent "noise" has forced a cut to estimates for 2011. Jonas highlights concerns from the earthquake and tsunami in Japan, as well as higher costs related to R&D and acquisitions by its drivetrain group.

That said, Jonas estimates that BorgWaner "can double revenues in four years and double earnings in three years," citing global fuel-economy mandates, growth in China and a rebound in commercial-vehicle sales.


6. CBS Corp. ( CBS)

Company Profile: CBS is a mass-media company with operations in entertainment, cable networks, publishing and local broadcasting. Among the assets owned by CBS are Simon & Schuster, Showtime Networks, CBS Television Studios, CNET Networks and CBS Radio.

Current Share Price: $27.30 (May 11)

Potential Upside: 14% based on a price target of $31

Morgan Stanley's Take: Analyst Benjamin Swinburne raised estimates and the price target on CBS after the media company topped first-quarter estimates. Swinburne says CBS is benefitting from cost discipline, strength in advertising and finding new ways to make money off existing content. CBS is also transforming its business toward greater recurring subscription and license fees, Swinburne writes.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

5. PepsiCo ( PEP)

Company Profile: Pepsi is a global food, snack and beverage company. Its brands include Pepsi, Mountain Dew, Tropicana, Gatorade, Lay's, Doritos and Lipton.

Current Share Price: $69.92 (May 11)

Potential Upside: 17% based on a price target of $82

Morgan Stanley's Take: Analyst Dara Mohsenian notes that Pepsi's stock underperformed in the second half of 2010, but adds that it's trading at a discount on a number of historical measures. Mohsenian says the multiple on Pepsi's stock should "continue to expand as investors become more comfortable with full-year earnings-per-share visibility."

Pepsi currently has a forward price-to-earnings multiple of 14, a slight discount to the S&P 500 as well as rival Coca-Cola ( KO).


4. Honeywell ( HON)

Company Profile: Honeywell is a conglomerate that makes security technologies, automotive products and chemicals.

Current Share Price: $61.40 (May 11)

Potential Upside: 22% based on a price target of $75

Morgan Stanley's Take: Analyst Scott Davis trumpets Honeywell's safety-products business, noting that personal protection equipment (PPE) is a $20 billion industry growing at twice the rate of gross domestic product. "Thebusiness is just 6% of Honeywell's overall sales but is growing fast," Davis writes.

"With about 10% market share, Honeywell is the leader along with 3M ( MMM), but the industry is still fragmented and could offer plenty of room for growth via acquisitions," Davis adds.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

3. RenaissanceRe Holdings ( RNR)

Company Profile: RenaissanceRe is a provider of reinsurance and insurance coverage.

Current Share Price: $69.31 (May 11)

Potential Upside: 26% based on a price target of $87

Morgan Stanley's Take: Analyst Gregory Locraft writes that RenaissaneRe's revenue growth should accelerate, as first-quarter results were dominated by losses from the Japan earthquake and tsunami, the New Zealand earthquake and Australian floods.

Locraft raised his 2012 and 2013 earnings estimates to reflect revenue growth and improving margins, even as he doubled his 2012 catastrophe budget "to more accurately reflect the potential for higher catastrophe losses in line with rising long-term averages."


2. Ford ( F)

Company Profile: Ford is the U.S.-based producer of cars and trucks including the F-150 pickup, Mustang sports car and Taurus family sedan.

Current Share Price: $15.12 (May 11)

Potential Upside: 39% based on a price target of $21

Morgan Stanley's Take: Analyst Adam Jonas says Ford's first-quarter results were as important a barometer of its revival as anything over the past two years, during which time the carmaker's stock jumped 160%.

"Despite facing a quarter with gas prices up nearly 20% and continued launch efforts for the Focus and Explorer ramp-up, the company beat consensus by 30% with strong earnings quality," Jonas wrote. Among the themes Jonas pulled from Ford's first-quarter numbers, he notes the carmaker's net pricing improved even before the supply crunch resulting from the Japan earthquake.

"Ford says it is 'scrambling' to make good on second-quarter production guidance and that supply issues are being solved faster than new ones are arising," Jonas wrote.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

1. Schlumberger ( SLB)

Company Profile: Schlumberger supplies technology, project management and information services to the oil and gas industry.

Current Share Price: $84.57 (May 11)

Potential Upside: 89% based on a price target of $160

Morgan Stanley's Take: Analyst Ole Slorer writes that Middle East business looks set to accelerate. Slorer expects two mega-capacity expansion projects in Saudi Arabia and Iraq "to soak up services in the region and help drive Middle East pricing and margins."

"Our broad thesis remains that the pendulum should swing back to international from North America," Slorer writes, "and we view Schlumberger as one of the best services plays on Middle East/international exposure."

>>To see these stocks in action, visit the 8 Stocks Morgan Stanley Is Betting On portfolio on Stockpickr.

-- Written by Robert Holmes in Boston.

>To contact the writer of this article, click here: Robert Holmes.

>To follow Robert Holmes on Twitter, go to http://twitter.com/RobTheStreet.

>To submit a news tip, send an email to: tips@thestreet.com.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

More from Personal Finance

Best U.S. Cities for New College Grads

Best U.S. Cities for New College Grads

33 Pictures of the Drastic and Deadly Impacts of Climate Change

33 Pictures of the Drastic and Deadly Impacts of Climate Change

30 Mind-Blowing Concept Cars and Cars of the Future We Want to See Built

30 Mind-Blowing Concept Cars and Cars of the Future We Want to See Built

All 2018 Graduates Must Watch Jim Cramer's Bucknell Commencement Speech

All 2018 Graduates Must Watch Jim Cramer's Bucknell Commencement Speech

The Best Investment Advice? Stay Diversified

The Best Investment Advice? Stay Diversified