Stock picks to buy, cheap alternatives to big tech: Morgan Stanley

  • Morgan Stanley says new technologies are feeding into a surge in productivity that will help the economy for years.
  • Strategist Adam Virgadamo says the pandemic will speed up that change, and investors don’t have to buy tech stocks to reap the rewards. 
  • He’s compiled a list of innovators that have been outperforming and look like they will continue to do based on their strategies and investments in their businesses.
  • Visit Business Insider’s homepage for more stories.

New technology has permeated so many industries and transformed business. But when investors want long-term growth, they’re mostly buying the same mega-cap tech stocks.

That’s stayed true even as some experts have warned about the sky-high prices of those same stocks, raising the spectre of the dot-com bubble 20 years ago and the dominance of a handful of giant stocks that hit record levels.

Whether there’s a bubble or not, Adam Virgadamo, a US equity strategist at Morgan Stanley, says investors need to be aware of the alternatives. He writes that technology is contributing to growth and bolstering economic productivity, feeding a secular bull market that dates to 2011 and didn’t end with the coronavirus crash.

“We are in the early innings of a technology-driven, decade-long investment cycle centered on data and digitalization that allows businesses to gain insights and improve productivity,” Virgadamo wrote in a note to clients.

He adds that the pandemic and its after-effects are only going to speed up that shift as companies look for ways to save money.

“[The recession] is a wakeup call to accelerate this digital transformation as companies with a greater digital presence are showing more resiliency in the wake of the pandemic,” he wrote. “We see a clear mindset shift at the executive level from viewing technology as supporting the business to technology becoming the business.” 

Many of the companies that are positioned to benefit from that transformation are already outperforming on the stock market, and that, in turn, could help broaden the performance of the market and close the gap between most stocks and Big Tech. That’s something most investors would see as healthy even if they’re not concerned about a bubble.

With that in mind, Virgadamo and his colleagues named 16 non-technology companies that are investing in revamping their businesses through innovations like digital banking, contactless payments, e-commerce updates, fuel storage cells, or more broadly by eliminating costs using improved software and other tech upgrades.

An older list of companies with a similar theme has outperformed. And looking at these stocks over the last three years, many of the newer additions have also provided market-beating returns. 

All 16 of the following companies are rated “Overweight” by Morgan Stanley’s analysts, in part because of the potential benefits of the trends Virgadamo is highlighting. Those companies are ranked from lowest to highest based on how much upside they have relative to Morgan Stanley’s price targets.

Those percentages were calculated based on Thursday’s closing prices.

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