As far as finding core blue chip stocks to hold in one’s portfolio at value levels, now is a great time to have a look at large Canadian and U.S. banks which have been hit particularly hard as a result of the COVID-19 pandemic.
In this article, I’m going to discuss why I think Morgan Stanley (NYSE:MS) is a great example of such a value play.
From a pure valuation perspective, Morgan Stanley certainly looks very cheap. The large cap U.S.-based lender has not seen any significant stock price appreciation over the past five years, indicative of an increasingly pessimistic general perspective of companies operating in the financials space in recent years.
This broad perspective is likely to continue for some time, providing near to medium-term headwinds for investors. Low interest rates seem to be headed for a "lower-for-much-longer” scenario, given recent comments from U.S. Federal Reserve Chairman Jerome Powell. These low interest rates negatively impact net interest margins for lenders like Morgan Stanley and therefore directly affect the bottom lines of such banks.
That said, at this point in time, I do believe the market is pricing in more than enough risk and downside into Morgan Stanley’s share price.
The company’s dividend is secure for now, bolstered by excellent liquidity and a very reasonable dividend payout ratio and a very strong wealth management division (which dilutes the negative effects of low new interest margins materially).
These factors provide room for downside in earnings and give investors a solid buffer to protect against near-term volatility. Morgan Stanley is a great long-term portfolio staple, now available at an attractive valuation.
Invest wisely, my friends.
