When the global economy shut down in 2020 and an unprecedented number of people began working remotely, investors flocked to tech stocks that benefited from the stay-at-home environment.
And as tech share prices surged, more and more investors wanted in, pushing prices up even further. As Morgan Stanley's Chief US Equity Strategist Mike Wilson puts it, "momentum begets momentum."
Now, as the global economy gets set to reopen and consumers get ready to spend their savings and coming stimulus checks— pushing inflation and therefore interest rates higher, hurting growth stocks — Wilson sees new momentum leaders in the making.
"The shift we have been highlighting in the composition of momentum is not over and the factor will continue moving toward cyclicals, lower quality, value, and small caps at the expense of the longer duration growth," Wilson wrote in a March 8 note.
Momentum is measured by how quickly a stock sees gains. One way to evaluate this is to look at year-over-year share price appreciation.
But according to Morgan Stanley, looking at appreciation over a six-month period is a strong indicator of how a stock's year-over-year performance will look, allowing investors to get a head start on the momentum trade.
Their analysis shows that the areas of the market listed above are set to soar in the near future as last March's lows get factored in.
The four charts below display this:
"The bottom line is that with pro-cyclical rotations now in-gear and the trailing 12-month basis for comparison heading for March's trough over the next month, we expect momentum to continue toward more pro-cyclical styles, potentially drawing additional supportive flows next month and throughout 2021," Wilson wrote.
To identify names that will benefit the most, Wilson and his team looked at stocks that will enter the top 20% of year-over-year momentum gains at the end of March. Of these, they also identified those that Morgan Stanley analysts give an overweight rating.
The 10 stocks that meet these criteria are listed below in alphabetical order.
1. Ally Financial
Ticker:ALLY
Sector: Financials
Market cap: $16.1 billion
Source: Morgan Stanley
2. Capri Holdings
Ticker: CPRI
Sector: Consumer Discretionary
Market cap: $7 billion
Source: Morgan Stanley
3. Corteva
Ticker: CTVA
Sector: Materials
Market cap: $32.6 billion
Source: Morgan Stanley
4. Eastman Chemical
Ticker: EMN
Sector: Materials
Market cap: $15.1 billion
Source: Morgan Stanley
5. East West Bancorp
Ticker: EWBC
Sector: Financials
Market cap: $10.3 billion
Source: Morgan Stanley
6. Microchip Technology
Ticker: MCHP
Sector: Information Technology
Market cap: $37.7 billion
Source: Morgan Stanley
7. News Corp
Ticker: NWS
Sector: Communications Services
Market cap: $13.4 billion
Source: Morgan Stanley
8. LPL Financial
Ticker: LPLA
Sector: Financials
Market cap: $10.4 billion
Source: Morgan Stanley
9. Signature Bank/New York
Ticker: SBNY
Sector: Financials
Market cap: $11.9 billion
Source: Morgan Stanley
10. Cimarex Energy
Ticker: XEC
Sector: Energy
Market cap: $6.5 billion
Source: Morgan Stanley