Morgan Stanley lists ‘attractive’ small-cap stocks with positive ROE and momentum
Apr. 07, 2025 1:47 PM ET
By: Carla Mozee, SA News Editor
Small-cap stocks recently sank into a bear market amid the market turmoil stoked by the Trump administration’s enacting of steep import tariffs, but Morgan Stanley said there are small-cap stocks in the group worth considering.
The Russell 2000 ( RTY) gauge of small caps has dropped ~26% from its closing high in December as of mid-Monday, while the S&P 500 ( SP500) has lost ~18% from its high hit in mid-February.
Morgan Stanley expects to see further underperformance of small-cap stocks ( RTY) relative to large-caps partially because they have a higher exposure to macro uncertainty, and as analysts have been pulling down per-share earnings estimates on small caps.
“That said, small-cap opportunities are rich under the surface,” Michael Wilson, chief U.S. equity strategist at Morgan Stanley, said in a research note Monday.
The firm said companies with positive ROE and Momentum have performed well within the small-caps cohort both on a historical basis and during 2024 through Q1 2025. Morgan Stanley screened for small-cap stocks with positive 12-month Momentum and ROE with either an overweight or equal-weight rating from its analysts.
Below is a partial list from Morgan Stanley, with Seeking Alpha concentrating on stocks with a market capitalization of at least $5B:
- Life Time Group (NYSE: LTH) - MS rating: Equal-Weight
- Brinker (NYSE: EAT) - MS rating: Equal-Weight
- Acushnet Holdings (NYSE: GOLF) - MS rating: Equal-Weight
- Group 1 Automotive (NYSE: GPI) - MS rating: Overweight
- Stride (NYSE: LRN) - MS rating: Equal-Weight
- Hamilton Lane (NASDAQ: HLNE) - MS rating: Equal-Weight
- Cadence Bank (NYSE: CADE) - MS rating: Overweight
- Jackson Financial (NYSE: JXN) -MS rating: Equal-Weight
- UMB Financial (NASDAQ: UMBF) - MS rating: Overweight
- Hims & Hers Health (NYSE: HIMS) - MS rating: Equal-Weight
- Halozyme Therapeutics (NASDAQ: HALO) - MS rating: Overweight
- Guardant Health (NASDAQ: GH) - MS rating: Overweight
- Moog (NYSE: MOG.A) - MS rating: Equal-Weight
- Leonardo DRS (NASDAQ: DRS) - MS rating: Equal-Weight
- Clearwater Analytics (NYSE: CWAN) - MS rating: Overweight
Small-cap ETFs include: ( IJR), (NYSEARCA: IWM), ( VB), ( VBR), ( VBK), ( SCHA), ( SPSM), and ( DFAS). |
