| | | Top small-cap stock picks from Morgan Stanley following the group's upgrade to neutral
Oct. 21, 2024 2:52 PM ET
By: Carla Mozee, SA News Editor
 Luis Alvarez
Morgan Stanley has listed its top picks among small-cap stocks ( RTY)( SP600), a group that’s recently benefitted from broader market rotation, but the investment firm said it's looking for some macro developments before it can turn outright bullish on the cohort.
The Russell 2000 ( RTY) gauge of small-caps has advanced ~0.7% in October, seeing some upside momentum in part into the U.S. presidential election. Small-caps tend to gain 25% on an absolute basis over the 12 months after White House races, Morgan Stanley (MS) said in a Monday note, outperforming large caps by 6%.
The investment firm recently upgraded small-caps to neutral versus the large-cap trade ( SP500)( COMP:IND)( DJI) following the blowout September jobs report and the Federal Reserve’s large half-point interest-rate cut last month. “For us to get outright bullish on Small caps overall, leading macro indicators would likely need to show that a clear acceleration in growth is coming,” Morgan Stanley said, echoing MS Equity Analyst Nicholas Lentini's October 16 note.
An upgraded view on small-cap stocks would need upward GDP revisions for 2025 and 2026, further improvement in leading surveys such as ISM and PMIs, improvement in consumer health, and in earnings revisions breadth, the firm said.
Here are Morgan Stanley’s top picks within small-caps, listed by sectors, accompanied by SPDR Select Sector ETFs:
Health Care ( XLV)
- LifeStance Health Group (NASDAQ: LFST)
- 10x Genomics (NASDAQ: TXG)
- Axsome Therapeutics (NASDAQ: AXSM)
- Bicara Therapeutics (NASDAQ: BCAX)
- Biohaven (NYSE: BHVN)
- CG Oncology (NASDAQ: CGON)
- Dyne Therapeutics (NASDAQ: DYN)
- Legend Biotech (NASDAQ: LEGN)
- Rhythm Pharmaceuticals (NASDAQ: RYTM)
- Structure Therapeutics (NASDAQ: GPCR)
- Viking Therapeutics (NASDAQ: VKTX)
Industrials ( XLI)
- Bloom Energy (NYSE: BE)
- Embraer (NYSE: ERJ)
- Kornit Digital (NASDAQ: KRNT)
- RBC Bearings (NYSE: RBC)
- Alaska Air (NYSE: ALK)
- American Airlines (NASDAQ: AAL)
- ArcBest ( ARCB)
- Knight-Swift Transportation (NYSE: KNX)
Consumer Discretionary ( XLY)
- BorgWarner (NYSE: BWA)
- Chewy (NYSE: CHWY)
- Group 1 Automotive (NYSE: GPI)
- Valvoline (NYSE: VVV)
- Hasbro (NASDAQ: HAS)
- Planet Fitness (NYSE: PLNT)
Financials ( XLF)
- Prosperity Bancshares (NYSE: PB)
- Bridge Investment (NYSE: BRDG)
- Evercore (NYSE: EVR)
- Lazard (NYSE: LAZ)
Information Technology ( XLK)
MKS Instruments (NASDAQ: MKSI)- Blackline ( BL)
- Unity Software (NYSE: U)
- Vertex (NASDAQ: VERX)
Materials ( XLB)
- Alcoa (NYSE: AA)
- Summit Materials (NYSE: SUM)
- United States Steel (NYSE: X)
Real Estate ( XLRE)
- Agree Realty (NYSE: ADC)
- American Healthcare REIT (NYSE: AHR)
Energy ( XLE)
- Antero Resources (NYSE: AR)
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