On October 1, during the episode of Mad Money, a caller asked if it was time to “pull the trigger” on Morgan Stanley (NYSE:MS) given its buyback authorization. Jim Cramer replied:
The answer is yes. I mean, I think, look, Ted Pick’s company’s been brought down along with the rest of them, and his is doing better. I think you want to buy the stock of Ted Pick. You want to buy the stock of Morgan Stanley.
Shareholder Returns and Wealth Management Growth
Morgan Stanley reauthorized a share repurchase program of up to $20 billion, beginning in the third quarter, without a fixed expiration date. The company also announced an increase in its quarterly dividend to $1.15 per share from $1. The capital-return plans follow substantial earnings growth. Second-quarter net revenue reached approximately $21.3 billion, compared with $16.8 billion a year earlier. Net income increased to approximately $5.6 billion from $3.5 billion, while diluted earnings per share rose to $3.46 from $2.13, outperforming the estimate by $0.53.
Wealth Management generated approximately $8.9 billion in revenue and a 30.5% pretax margin. The business attracted approximately $148 billion in net new assets, although just over half came from initial public offerings involving clients in its workplace channel. That concentration is relevant when assessing whether subsequent quarters can match the inflows. You can also check out whether Morgan Stanley’s economic moat is narrowing or widening.
Market Sensitivity and Credit Exposure
Morgan Stanley’s (NYSE:MS) quarterly filing mentioned geopolitical developments, inflation, economic growth, and monetary policy as continuing sources of uncertainty for its businesses. It also reported that higher market levels contributed to asset-management fees, showing the connection between market performance and revenue. Credit exposure produced some weaker results beneath the headline growth. Institutional Securities recorded approximately $152 million in negative “Other” net revenue, compared with positive revenue of approximately $202 million a year earlier. The company attributed the decline primarily to higher mark-to-market losses on corporate loans, including hedges.
Morgan Stanley trades at approximately 14.7x forward earnings, compared with 13x for Goldman Sachs. The modest premium means the shares were not trading at a discount to that close investment-banking competitor, despite the pullback discussed by Cramer. In an August episode, Cramer highlighted both the stocks to be profiting from accelerating M&A deals.
More Funds Take Positions, With Limited Short Exposure
Insider Monkey’s database, which tracks more than 1,000 hedge funds, showed 86 funds holding Morgan Stanley in the second quarter, up from 80 in the preceding quarter. Of those funds, Fisher Asset Management has been the biggest shareholder for the past few quarters and held 26.17 million shares in Q2. Short interest stood at 1.24% of the public float, representing a relatively small amount of outright short positioning.
Cramer’s bullish comments come with stronger earnings, wealth-management growth, and expanded shareholder returns. Market-sensitive revenue and corporate-credit exposure remain important considerations when judging the durability of that performance.
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