10 Stocks to Watch from Morgan Stanley’s Ultra-Selective Tailwinds Strategy

8. Ecolab Inc. (NYSE:ECL)

Number of Hedge Fund Investors: 62

Portfolio Weightage: 0.0%

Ecolab Inc. (NYSE:ECL) is a global leader in water, hygiene, and infection prevention solutions and services. The company’s advantage comes from its technical expertise, established customer relationships, and extensive field-service network. Morgan Stanley specifically highlighted its 26,000 field associates. The firm believes that AI and digital technologies could make Ecolab’s competitive moat more valuable by improving the productivity of its large service network, allowing it to deliver greater value to customers without proportionately increasing its workforce.

Ecolab is already successfully shifting its sales mix toward high-margin growth drivers such as AI, data center cooling, and bioprocessing solutions. This was evident in its Q3 2026 report, with the company reporting a 7% organic sales growth and an 11% increase in organic operating income.

Ecolab is also participating directly in the AI boom, with the company expanding its technology division by acquiring liquid-cooling and ultrapure-water providers to serve data centers and semiconductor plants. The firm’s Global High-Tech segment continues to accelerate, growing organic sales by 63% YoY in the third quarter.

A notable development in this regard was Ecolab’s acquisition of CoolIT Systems, a leader in liquid cooling for AI servers, for $4.75 billion in cash. Completed in July, the deal is likely to generate about $550 million in sales in its first year.

Ecolab now expects its organic sales growth to come in at the upper end of its 5% to 7% target for FY 2027, with adjusted operating income margin projected to reach 20%.

Click here to see our full analysis of Ecolab.

7. Cintas Corporation (NASDAQ:CTAS)

Number of Hedge Fund Investors: 64

Portfolio Weightage: 0.0%

Cintas Corporation (NASDAQ:CTAS) provides workplace uniforms, facility services, cleaning supplies, and related business services.

Morgan Stanley highlighted the potential of automation in the company’s centralized cleaning facilities, which could help improve processing efficiency, reduce manual labour, and increase facility throughput. The combination could improve operating margins over time. Additionally, the analyst firm pointed out that AI-powered sales technology could help Cintas identify additional opportunities to cross-sell products and services to its clients, allowing it to generate more revenue from its existing customer base.

That said, the bigger opportunity still lies outside its existing base. Cintas estimates there are 16 million to 20 million businesses in its market compared to around 1 million customers today. The company has been successful in capitalizing on this. Cintas’ organic revenue grew by 9% in the August quarter, an acceleration from prior quarters, with two-thirds of this growth continuing to come from first-time outsourcers.

Notably, the lion’s share of this growth comes from doing more business with more customers instead of just raising prices. Gross margin also stood at an all-time high. Cintas is expecting revenue growth of 7.9% to 8.9% and EPS growth of 8.5% to 11.3% EPS for FY 2027.

That said, despite its scale, Cintas operates in a fragmented market. Its competitors include national providers, regional uniform rental companies, local laundry operators, retailers, and businesses that choose to handle certain services internally. If this competition intensifies, the company may have to sacrifice some pricing flexibility to retain customers.

Click here to see what Jim Cramer thinks about Cintas.

6. Union Pacific Corporation (NYSE:UNP)

Number of Hedge Fund Investors: 102

Portfolio Weightage: 0.0%

Union Pacific Corporation (NYSE:UNP) is the largest freight railroad in the United States, covering 23 states and approximately 7,300 communities. Morgan Stanley believes that the railroad operator can use artificial intelligence to reduce costs, improve productivity, and get more out of its infrastructure.

One particularly notable example involves automating railroad tie unloading. Morgan Stanley highlighted that Union Pacific can use automation to reduce the time required to unload 33,000 railroad ties from approximately 10 days to just six hours. This illustrates the potential for substantial labor savings and faster infrastructure maintenance.

UNP’s moat consists of its extensive railroad network, established customer relationships, and significant infrastructure investments, which already create substantial barriers to entry. These barriers are a large part of why the company keeps 40.9% of its revenue as operating profit. Introducing AI into the mix could make this network more efficient, improve service reliability, and potentially support even higher operating margins and returns. However, the true extent of this advantage will depend on successful execution and integration.

Union Pacific’s proposed acquisition of Norfolk Southern Corporation is also an important potential growth catalyst. The transaction to create the first transcontinental railroad in America, connecting UNP’s western network with Norfolk Southern’s eastern network. However, the $85 billion deal has been filed twice and rejected once as incomplete. The regulator’s timetable now runs into the second half of 2027 against opposition from unions and rival railroads.

The high fuel costs amid a global supply crunch are also pressuring Union Pacific’s profitability. The company witnessed a 64% increase in average fuel price in Q3 2026, negatively affecting its operating ratio by about 140 basis points.

Is Union Pacific’s economic moat widening or narrowing? Check out our analysis HERE.

5. Aurora Innovation, Inc. (NASDAQ:AUR) 

Number of Hedge Fund Investors: 40

Portfolio Weightage: 0.47% 

Aurora Innovation, Inc. (NASDAQ:AUR) is developing autonomous trucking technology, with the objective of enabling trucks to operate without human drivers.

Morgan Stanley sees an opportunity to improve the utilization of expensive trucking assets. If autonomous technology allows them to spend more time transporting goods than sitting idle, trucking companies could generate more revenue from the same fleet. This could translate into lower transportation costs, better fleet productivity, and potentially higher operating margins. The technology could also help reduce accidents associated with human error.

Aurora has already moved beyond testing and is hauling freight commercially with trucks operating without anyone being behind the wheel. The company’s Driver as a Service (DaaS) model could generate recurring revenue from customers without requiring Aurora to own every truck. Ultimately, the firm’s autonomous driving software, accumulated driving data, safety validation, and partnerships with major truck manufacturers could make it difficult for competitors to replicate its position.

Notably, Charger Logistics has selected Aurora to scale its autonomous fleet with a plan to own and operate 500 Driver-as-a-Service trucks. The MoU represents a potential multiyear revenue stream in the hundreds of millions of dollars. Meanwhile, Aurora continues to ramp up its production capacity, with a targeted production rate of 20 trucks per week starting in early December.

That said, there is a substantial disconnect between Aurora’s technological progress and financial performance. The company reported an operating loss of $257 million in the third quarter, including stock-based compensation. While it has over $1 billion in cash and short-term investments, the firm expects to use approximately $250 million during Q4 2026 to ramp up production.

Aurora clarified that its liquidity should be enough to cover working capital and capital expenditure requirements for at least the next 12 months. However, the management indicated that it will need to opportunistically raise additional capital, creating a risk of dilution.

Aurora Innovation, Inc. ranks 5th in our list of the 10 Best Autonomous Vehicle Stocks Backed by Hedge Funds. To see which stocks outranked it, click HERE.