It’s fair to say that Wall Street banks are grappling with a slump in IPOs and debt and equity issuances this year, which is a complete reversal of the market environment that has generated outstanding results last year. The change was triggered by a broad decline in financial assets, growing pessimism about the possibility of a recession and the Russian invasion of Ukraine.
But does that mean investors should stay away indefinitely, or are there potential opportunities starting to open up in individual names? With new earnings post release, let’s take a look at two of Wall Street’s biggest names and see if there’s enough long-term potential to warrant a starting position.
Morgan Stanley (NYSE:MS)
Morgan Stanley Shares are down more than 30% from their February high and actually set a new low yesterday morning before rallying at the close. Volatility was fueled by the release of their second quarter results which came out before the bell rang to open the session. Revenue and EPS both missed expectations, with the former contracting 11.5% year-on-year.
It wasn’t exactly the surprise investors would have hoped for, and with stocks already at a 52-week low, you’d think there’s a good chance it will sink them further. The bank’s results were penalized by a sharp 55% drop in investment banking revenues. It confirmed what some analysts feared for Morgan Stanley, which runs one of the largest equity capital markets operations on Wall Street.
But there are signs that we are nearing capitulation and for those of us with a long enough investment horizon, it is worth taking note of the underlying strength still at play at Morgan Stanley. Management saw fit to increase the quarterly dividend by 11%, hardly the move of a company that sees things getting worse. On the contrary, it is considered one of the most bullish signals a company can give to the market. Is Morgan Stanley Telling Investors It’s Time To Start Backtracking?
JP Morgan had an even tougher first half of 2022 than its cousin across the way, with stocks down almost 40% from their peak last October. But what’s interesting here is that they were recently upgraded to full buy rating by the Citi team.
Earlier this week, Citigroup analyst Keith Horowitz upgraded them as he sees unrecognized upside potential on its EPS as the stock no longer reflects a premium valuation. In a note to clients, he wrote that “we believe investors will look first to high-quality franchises with strong management teams and strong balance sheets, and we believe JPM fits that narrative.”
The move and the bullish comments will partly help offset the company’s poor results yesterday, which missed analysts’ expectations for both quarterly revenue and earnings per share. At least the bank’s earnings were able to move in the right direction, registering a slight year-on-year increase compared to Morgan Stanley’s which fell. Still, with the stock nearing new lows, investors getting involved will need to be wary of trying to catch a falling knife. Another 10% drop will see JPMorgan shares trading at the level they held at the height of the pandemic selloff in 2020, and it’s hard to see them giving that up without a fight. If you had to pick a time to really go for it, it’s now that they’re on the verge of what may well be the final capitulation.
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Should you invest $1,000 in Morgan Stanley right now?
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