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We’re buying up shares of this bank stock on a steep post-earnings pullback

October 18, 2023 Published by

US Top News and Analysis 

We are buying 75 shares of Morgan Stanley (MS), at roughly $73.79 apiece. Following Wednesday’s trade, Jim Cramer’s Charitable Trust will own 1,475 shares of MS, increasing its weighting in the portfolio to 3.87% from 3.68%. Shares of Morgan Stanley were down roughly 8% in midday trading Wednesday — hitting a new 52-week low — after the bank reported mixed third-quarter results before the opening bell. On the surface, the quarter was better than expected, with revenue and earnings both topping Wall Street forecasts. But the bank’s performance was held back by its investment-banking and wealth-management divisions. Investors were already well aware that investment-banking activity is weak across the board, with few mergers and acquisitions and a frozen, if thawing, market for initial public offerings. So, the surprise for investors with Morgan Stanley’s results Wednesday – and the key reason why the stock is selling off so aggressively – was the disappointing set of results at the wealth-management business, the bank’s most durable segment. Revenues from wealth management increased about 5% over last year but fell short of analysts’ estimates. Net interest income was lighter than expected, as clients allocated more of their rate-sensitive cash to higher-yielding cash alternatives. Adding to some angst around the fees and income wealth management is generating, investors were disappointed over the amount of net new assets the firm brought in last quarter. Morgan Stanley management has a target of adding $1 trillion in net new assets every three years. The bank was off to a terrific start through the first half of 2023, adding about $200 billion of assets into its fold. But Morgan Stanley said Wednesday that it had only brought in $36 billion in net new assets in the third quarter, concerning investors the bank may not be able to achieve its $1 trillion target. We think it’s too early to make that call. To be fair, we would have preferred to see a larger number come through, as well. But management has always said that this figure would have some lumpiness quarter to quarter, making it misguided to extrapolate one quarter’s results to the next. And with $235 billion in net new assets over three quarters, Morgan Stanley is still on track to reach its goal. Our decision to buy up shares of Morgan Stanley into weakness Wednesday is a bet that its wealth-management business — the best in the entire banking industry — will bounce back in the quarters ahead and restore confidence in its ability to generate fees and reach the bank’s net new asset target. In the meantime, investment-banking activity is troughing, with Morgan Stanley highly confident that trends will improve significantly shortly after the Federal Reserve signals it is finished raising interest rates. “The minute you see the Fed indicate they’ve stopped raising rates, the M & A and underwriting calendar will explode because there is enormous pent-up activity,” CEO James Gorman explained during the bank’s post-earnings conference call. As we wait for all of this to play out, we continue to point to Morgan Stanley’s large, safe dividend yield of 4.6% as an attractive payment that compensates us for our patience. (Jim Cramer’s Charitable Trust is long MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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Jeff Marks, Jim Cramer