Morgan Stanley names cash-rich global stocks with ‘better downside protection’

Morgan Stanley named a raft of European stocks with strong balance sheets, lots of cash or high shareholder returns. The bank said the latest quarterly results showed a slowdown in revenue, earnings and cash flow “as companies brace for higher interest rates and a less certain macro environment,” but it identified several that appear to be bucking the trend in a research note seen by CNBC on Wednesday. The bank analyzed more than 400 companies that trade on the MSCI Europe index to create several stock screens. On a list of stocks with strong balance sheets, Morgan Stanley included retailers Next , H & M and JD Sports , as well as pharmaceutical firm Sanofi and biotech company Genmab . It also named aerospace companies Airbus and MTU Aero Engines , software company SAP and semiconductor firm STMicroelectronics . “We searched for companies with strong balance sheets and sufficient liquidity that are generating a return over their cost of capital,” the bank stated. The bank said these firms also have an expected free cash flow growth of more than 5% over the next two years. High cash flow and shareholder returns The bank also screened for companies with “resilient high free cash flow.” “Self-financing companies should be better able to weather any prolonged macroeconomic weakness, deploying capital effectively and seizing opportunities that come along the way,” Morgan Stanley said. Its list included oil companies BP and TotalEnergies and utilities firm Centrica , as well as advertising groups WPP and Publicis Groupe . Also on the list are automaker Stellantis and steel supplier Tenaris . “Cash-rich companies with high free cash flow yields should also have better downside protection, while providing upside potential if management is able to deploy its cash effectively,” the bank said. Morgan Stanley also screened for stocks with the highest total shareholder returns, naming InterContinental Hotels , materials company Holcim , fashion firm Burberry and jewelry business Pandora among its picks. Those firms also have “positive free cash flow and net income growth expected over the next 2 years,” the bank said. — CNBC’s Michael Bloom contributed to this report.

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