Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Morgan Stanley (MS), Goldman Sachs Group Inc (GS): Investment Banks Are Cheap Right Now…Here’s How to Play It

Morgan Stanley (NYSE:MS) is one of the largest investment and asset management companies in the United States, but is actually the smallest of my “big three,” the others being Goldman Sachs Group Inc (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM). With the recent pullback in the sector, Morgan Stanley (NYSE:MS) is now about 10% below its 2-week high reached just a few weeks ago, and is trading for a particularly attractive valuation.However, what I want to know is how Morgan Stanley (NYSE:MS) stacks up to the others, and if it is the best option for our portfolios.

About Morgan Stanley (NYSE:MS)

Morgan Stanley

Morgan Stanley (NYSE:MS) is one of the largest financial services firms, with about $800 billion in total assets. The company operates through three main segments: Institutional Securities, Global Wealth Management, and Asset Management.

The Institutional Securities Group makes up 40% of the company’s revenues and provides a wide range of services. In addition to investment banking services, the segment also provides market-making services, risk management analysis, and financial advisory services. Morgan Stanley (NYSE:MS)’s investment bank is one of the biggest in the world, and actually ranks second in the world in M&A activity and third in IPO’s.

Global Wealth Management is the company’s most lucrative, producing over half of their revenues last year. This segment provides brokerage, investment advisory, wealth planning, and banking services, in addition to offering annuities, insurance products, and more. The segment provides these services through Morgan Stanley Wealth Management, formerly Morgan Stanley Smith Barney (MSSB), of which it owns a majority stake (65%) with Citigroup Inc (NYSE:C) owning the rest. Morgan Stanley has expressed its intention to acquire the rest before the end of 2015, which I think will add stability to the company, shifting more of its revenues toward wealth management and away from trading activities.

Finally, the company’s smallest segment is Asset Management, which accounts for 8% of revenues and provides services to institutional clients in regards to equities, fixed income investments, and other types of investments.

Growth and Numbers

With the terms for purchasing the rest of the wealth management business completed, there is a lot of potential for the company to grow this side of its business, the revenue from which tends to be much more stable than revenues from investment banking. Just from a quick calculation based on the revenue makeup of last year and the amount of MSSB the company owned last year (they owned 51% until late September), once the company finalizes the acquisition of the remaining 35%, the Global Wealth Management Group will account for about 67% of the company’s revenue, making it even more important to Morgan Stanley’s bottom line than it already is.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.