Morgan Stanley's 50 Stock Picks for 2015 -- Yes, 2015

BOSTON (TheStreet) -- Dozens of investment banks large and small, from Goldman Sachs to Raymond James, are rattling off their favorite stock picks for the coming year. Morgan Stanley is going long -- to 2015.

The New York-based bank's analysts collected their 50 best stock ideas for three years from now, revisiting an idea the firm originally tried after the market meltdown in late 2008 and early 2009. Morgan Stanley identified companies that it said were likely to extend their competitive advantages, with stocks such as retailer Target ( TGT) and chipmaker Qualcomm ( QCOM) making the cut.

The companies are "likely to emerge with an even more powerful edge when markets and economies stabilize," the analysts wrote in a 72-page research report released Thursday.

For investors, looking beyond 2012 makes sense. After all, the Federal Reserve has already said it will keep interest rates low through June 2013 because of the sluggish economy. Even economists are ratcheting down their growth expectations for countries around the world. Using this list of stocks for 2015, investors could think longer term and feel less threatened by more immediate market events, including a potential sovereign default in the eurozone.

The Morgan Stanley analysts said they focused more on sustainability and the best franchises, not necessarily the most undervalued stocks. The bank said the 50 companies have business models and market positions that would be increasingly differentiated from their competitors by 2015.

Of the 50, 14 make Morgan Stanley's Best Ideas List, a collection of the most attractive stocks in terms of risk-to-reward profile. I've included a graphic of the 36 stocks that Morgan Stanley has picked for 2015, below, and I dove deeper into the 14 stocks that are also on the Best Ideas List.


14. Life Healthcare Group ( LTGHF.PK)

Company Profile: Life Healthcare Group is the operator of 63 hospitals in South Africa.

Share Price: 20.40 South African rands (Dec. 15)

Potential Upside: 9% based on a price target of 22.3 South African rands

Morgan Stanley's View: Analyst Andrew Olanow says Life Healthcare is a play on solid underlying defensive growth. The company's high margins still have room for upside, Olanow writes, and that valuation looks reasonable.

"With any price regulations by the South African government for private hospitals delayed until 2014, we see added price pressure as unlikely before 2015," Olanow writes. He adds that the company's excess cash should drive a high dividend yield.

Olanow's base case view is for a 9% increase over the next 12 months. However, his most bullish scenario is that the stock will rise 33% over the next year, while his most bearish view is for a 28% slide in 2012.

The chart below shows shares of Life Healthcare that trade on the Pink Sheets in the U.S., but Morgan Stanley is recommending buying shares on overseas exchanges.

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13. Anheuser-Busch InBev ( BUD)

Company Profile: Anheuster-Busch InBev is the largest beer maker in the world. Its brands include Budweiser, Stella Artois, Michelob, Beck's and Hoegaarden.

Share Price: 44.20 euro dollars (Dec. 15)

Potential Upside: 11% based on a price target of 49 euro dollars

Morgan Stanley's View: Analyst Michael Steib says that AB-InBev should continue to have strong operating profit growth and that the stronger balance sheet could lead to an increase in the dividend payout ratio next year from 34% to 50%.

"Beer is an industry where due to high distribution costs market leaders enjoy substantial scale benefits and AB-InBev consequently has the highest group margins of the main global brewers," Steib writes.

Looking out to the end of 2012, Steib says his most bullish scenario will see AB-InBev shares climb as much as 24%, while the bear case scenario would see a 19% decline over the next 12 months.

The chart above shows the American Depositary Receipts of AB-InBev trading in the U.S., although Morgan Stanley recommends buying shares trading in Brussels.


12. Imperial Tobacco ( ITYBY.PK)

Company Profile: Imperial Tobacco is an international tobacco company that produces a range of cigarettes, tobacco, rolling papers and cigars. Its brands include Davidoff, West and Gauloises Blondes.

Share Price: 2,397 pounds (Dec. 15)

Potential Upside: 14% based on a share price of 2,680 pounds

Morgan Stanley's View: Analyst Toby McCullagh says the market is underestimating Imperial Tobacco's medium-term growth potential.

"In addition to robust, reliable high single digit earnings growth, IMT has further capacity to surprise positively on cash returns, given leverage ratios that are comfortably in check, and perennially strong cash generation," McCullagh writes. "We see scope for upside surprises on the dividend and the buyback in the coming years."

While McCullagh's base scenario calls for a 14% increase in share price over the next year, his most bullish view has shares rising 41% while his bearish view expects shares to drop 16%.

The chart below shows shares of Imperial Tobacco that trade on the Pink Sheets in the U.S., but Morgan Stanley is recommending buying shares in London.

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11. Ryanair ( RYAAY)

Company Profile: Ryanair operates more than 1,400 flights per day across 27 countries. The company touts itself as the largest low-fare airline in Europe.

Share Price: 3.76 euro dollars (Dec. 15)

Potential Upside: 17% based on a price target of 4.50 euro dollars

Morgan Stanley's View: Analyst Penelope Butcher calls Ryanair "the best placed airline in our coverage universe," which she pins on the company's pricing power, competitor capacity withdrawals, and bargaining power with manufacturers and airports.

"On our forecasts, the company will still be in a position to match its record 2007 net income result for FY12, and continue to expand toward doubling this result by 2015, owing to modest capacity growth and stability/potential relief in its fuel cost base from calendar 2012 onward," Butcher writes.

While Butcher's base case calls for a 17% climb in share price next year, her most bullish view would have shares up 61% next year. On the downside, her most bearish outlook calls for shares of Ryanair falling 27% in 2012.

The chart above shows the American Depositary Receipts of Ryanair trading in the U.S., although Morgan Stanley recommends buying shares trading in London.


10. RenaissanceRe ( RNR)

Company Profile: RenaissanceRe is a global provider of reinsurance and insurance, in particular for catastrophe and specialty reinsurance.

Share Price: $71.81 (Dec. 15)

Potential Upside: 19% based on price target of $87

Morgan Stanley's View: Analyst Gregory Locraft says RenaissanceRe has the highest rates in reinsurance, which is the fastest growing segment in property and casualty (P&C) insurance.

"We expect rising property reinsurance pricing power and demand through 2012 and a broadening P&C cycle turn into 2013," Locraft writes. "We estimate the company has $600 million of excess capital to help accelerate organic growth in an improving marketplace."

Locraft has a base case scenario that would see RenaissanceRe's shares climb 19% over the next 12 months. His most bullish scenario calls for a gain of 38% in 2012 while his most bearish view would have shares down 19% next year.

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9. Target ( TGT)

Company Profile: Target operates more than 1,700 retail stores across the U.S., with plans to open its first stores in Canada in 2013.

Share Price: $52.07 (Dec. 15)

Potential Upside: 20% based on a price target of $64

Morgan Stanley's View: Analyst Mark Wiltamuth pins his "overweight" rating for Target on the retailer's plans to move into Canada and a focus on the company's core U.S. business.

"We see a significant middle market opportunity in Target's entry into Canada and a retailer that can drive stable growth in the U.S.," Wiltamuth writes. "With TGT's valuation near a 15-year low, we see valuation recovery once investors look forward to the 16-20% EPS growth and rising free cash flow in 2013 and beyond."

A return of 20% based on Wiltamuth's price target would make any investor happy, but Wiltamuth's most bullish scenario has Target shares up a huge 42% next year if all things align perfectly. His most bearish prediction, on the other hand, would likely mean a 25% slump for the stock over the next 12 months.


8. Teradata ( TDC)

Company Profile: Teradata is a provider of enterprise technologies and services, including database warehousing and analytics.

Share Price: $48.97 (Dec. 15)

Potential Upside: 23% based on a price target of $65

Morgan Stanley's View: Analyst Katy Huberty says that Teradata's revenue growth is accelerating despite the economic uncertainty. She ties this on a significant increase in consultants, recent acquisitions by the company, and growth in spending on data analytics.

"While Teradata's sweet spot is selling to Global 3,000 companies, where it has over one-third of the market, we see a longer-term opportunity for Teradata to expand into the mid-market given high demand for more affordable analytics appliances," Huberty writes. "The mid-market more than doubles Teradata's addressable market, in our view."

Huberty's base case is for the stock to rise 23% next year, based on her price target. Her most bullish forecast, though, is for a 55% increase in share price over the next 12 months. Her most bearish scenario has shares down 17% in 2012.

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7. InterContinental Hotels ( IHG)

Company Profile: InterContinental Hotels operates more than 4,500 hotels in 100 countries.

Share Price: 1,072 pounds (Dec. 15)

Potential Upside: 25% based on a price target of 1,400 pounds

Morgan Stanley's View: Analyst Jamie Rollo says InterContinental is a "high-quality play" on the attractive hotel cycle.

"This virtuous circle has already resulted in an industry-leading pipeline of 190,000 rooms, nearly 30% of its current system," Rollo writes. "Its fee-based model offers investors bond-like characteristics with a secure income stream, high margins, and low capex. And we are just at the beginning of this hotel cycle."

Rollo's 12-month view has a base case expectation that shares will rise 25%, but his most bullish scenario calls for a 61% surge over the next year. On the downside, Rollo's bearish view would mean shares slip 28% over the next 12 months.

The chart above shows the American Depositary Receipts of InterContinental Hotels trading in the U.S., although Morgan Stanley recommends buying shares trading in London.


6. Terumo ( TRUMY.PK)

Company Profile: Terumo is a medical-devices maker that serves the areas of hollow-fiber technology, blood-management systems and endovascular therapy.

Share Price: 3,755 yen (Dec. 15)

Potential Upside: 26% based on a price target of 4,700 yen

Morgan Stanley's View: Analyst Mayo Mita says the Japanese earthquake and tsunami was a setback for the company, Terumo has a more visible growth stage coming.

"Over the next five years we see clear growth from China, the NOBORI drug eluting stent (DES), the U.S. catheter business, and the blood management business," Mita writes.

The base-case Mita lays out is for a 26% rise in share price next year, although Mita's most bullish forecast has shares up twice that. On the downside, Mita's most bearish scenario has shares falling 11% in the next 12 months.

The chart below shows shares of Terumo that trade on the Pink Sheets in the U.S., but Morgan Stanley is recommending buying shares in Tokyo.

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5. Union Pacific ( UNP)

Company Profile: Union Pacific operates a railroad franchise that covers 23 states in the western part of the U.S.

Share Price: $98.79 (Dec. 15)

Potential Upside: 26% based on a price target of $128

Morgan Stanley's View: Analyst William Greene says Union Pacific is one of the firm's best ideas as it is one of the most compelling stocks in freight transportation.

"We are bullish on the rail industry's advantage over its truck competitors including lower unit costs for high tonnage freight and greater customer captivity," Greene writes. "Given UNP's particularly favorable exposure to the key themes underpinning our rail thesis, we believe UNP will see secular EPS growth."

Greene specifically highlights Union Pacific's latent pricing power, its operating leverage to long-term volume growth, and long-term productivity improvement.

Greene's base case calls for a 26% rise in share price next year, although his most bullish outlook for Union Pacific has the stock up 38% next year. His most bearish scenario has the stock down 12% next year.


4. BorgWarner ( BWA)

Company Profile: BorgWarner is a supplier of car parts with a focus on the powertrain. Its customers include Ford ( F), General Motors ( GM), Toyota ( TM) and other automakers.

Share Price: $62.93 (Dec. 15)

Potential Upside: 27% based on a price target of $88

Morgan Stanley's View: Analyst Ravi Shanker says that BorgWarner is a powerful secular story for the next decade, never mind the next three years.

"The market significantly underestimates the growth potential, especially in end-markets outside of light vehicle turbo," Shanker writes. "BorgWarner participates in end markets that are concentrated among few players, have high barriers to entry, and could see a skewed demand-supply equation for the next several years."

Shanker's most bullish scenario would see BorgWarner shares climb 45% by the end of 2012, while his bearish scenario would see shares slip 28%.

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3. Amazon.com ( AMZN)

Company Profile: Amazon is the world's largest Internet retailer of books, movies, electronics, toys and apparel. The company also produces the Kindle eBook readers and tablets.

Share Price: $181.26 (Dec. 15)

Potential Upside: 35% based on a price target of $260

Morgan Stanley's View: Analyst Scott Devitt says that Amazon is the best positioned to lead the continuing secular transition from traditional retail to online ecommerce.

"On multiple occasions, at different points in the company's life-cycle, Amazon.com has chosen to innovate, oftentimes cannibalizing existing business platforms in order to better position itself to provide its customers the products they will want," Devitt writes.

Devitt's most optimistic view of Amazon would see shares rise 71% by the end of 2012, while his bearish scenario for the Internet retailer would see shares fall about 21% over the next 12 months.


2. PT Telekomunikasi ( TLK)

Company Profile: PT Telekomunikasi is the largest telecom-services company in Indonesia, providing voice and Internet services to more than 125 million customers.

Share Price: 7,250 Indonesian rupiahs (Dec. 15)

Potential Upside: 36% based on a price target of 9,800 Indonesian rupiahs

Morgan Stanley's View: Analyst Navin Killa is looking to Indonesia for opportunity with the pick of PT Telekom.

"An improving pricing environment will lead to stock price recovery, we believe," Killa says. "Telkomsel is regaining market share. Historically, as Telkomsel has reduced the pricing gap with its peers, the incumbent has increased its market share."

Killa's base target for PT Telekom calls for a 36% jump over the next 12 months after the stock fell 8% this year. However, Killa's most bullish call would see shares rise 56%, while the bearish scenario would see only a 9% increase in share price over the next year.

The chart below shows the American Depositary Receipts of PT Telekom trading in the U.S., although Morgan Stanley recommends buying shares trading on overseas exchanges.

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1. Schlumberger ( SLB)

Company Profile: Schlumberger is a provider of services to the oil and gas industry.

Share Price: $66.33 (Dec. 15)

Potential Upside: 42% based on a price target of $95

Morgan Stanley's View: Schlumberger has the most potential upside of any stock in this group of 50 that also makes the firm's Best Ideas list. Analyst Ole Slorer says Schlumberger has "what we consider the most advanced technology portfolio in the industry."

"Its fundamentals are impressive, with what we think are some of the best field personnel, a pristine service and performance reputation, and leading market share in most of its product lines," Slorer writes.

Though Slorer's price target is 42% above current levels, his most bullish scenario for Schlumberger over the next year would see shares climb a whopping 116%. On the downside, his most bearish scenario for the company would see shares slide 38% over the next 12 months.

-- Written by Robert Holmes in Boston.

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

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

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