Morgan Stanley's Top Financial Investment Ideas Post Q3 Earnings Includes Several Surprises

A group of analysts at Morgan Stanley published their top investment ideas in the financial sector at the conclusion of the third quarter.

The analysts are “incrementally more positive” on payments as signs of a cross-border recovery and overall healthy spending trends continue to emerge. Specialty & consumer finance within auto finance is also preferred along with large-cap banks.

The analysts are “incrementally more negative” on mid-cap banks given a 5 percent shortfall in aggregate Pre-Provision Net Revenue on higher expenses and ongoing NIM compression. Property and casualty insurance firms are also viewed more negatively due to industry-wide fundamental headwinds including decelerating pricing, stalling core margin expansion, thin reserves and low yields.

The analysts are unchanged on asset managers, life insurance firms and REITs which may prove to be a “potential new long-term positive.”

The analysts conclude by stating: “We remain cautious on the sector as we expect less upside to earnings per share estimates due to less release of NIM pressure and a negative second derivative on housing, combined with less reserve releases. We prefer consumer discretionary as a shorter-term trade, given the backdrop of lower expectations and a ‘tax break' in the form of lower oil.”

Morgan Stanley Top Picks

The analysts named the following as their top investment ideas:

• Ally Financial Inc ALLY
• Bank of America Corp BAC
• Citigroup Inc C
• DDR Corp DDR
• HFF, Inc. HF
• Prudential Financial  PRU
• Signature Bank SBNY
• Santander Consumer USA Holdings SC
• Taubman Centers TCO
• Visa inc V
• WisdomTree Investments, Inc. WETF
• XL Group plc XL