With shares of Morgan Stanley (NYSE:MS) trading at around $19.58, is MS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Amazingly, there hasn’t been much news for Morgan Stanley recently. Therefore, we can focus on the basics. Morgan Stanley is currently in this midst of a valiant comeback. Much of this has had to do with the sector overall. Policies and lax regulation have been big boons for banks. The Federal Reserve and European Central Bank have been major players as well as the biggest catalysts.

Catalysts are critical to discovering winning stocks. Check out our newest CHEAT SHEET stock picks now.

In 2013, we will likely see only high-quality banks and investment brokerages continue to perform exceptionally well. Others will begin to slow. Morgan Stanley isn’t a leader in this arena. More importantly, margins and ROE are in negative territory. However, despite those negatives and Morgan Stanley not being best of breed, there are several positives to consider. These positives include an operating cash flow of $18.57 billion, a Forward P/E of 9.89, a strong balance sheet, and 12 Buy recommendations vs. 3 Sell recommendations by analysts.

Let’s take a look at some more important numbers for Morgan Stanley.

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for Morgan Stanley is weak, but that’s normal for the sector. Morgan Stanley isn’t a direct competitor to Bank of America (NYSE:BAC) and Citigroup (NYSE:C), but these are good barometers. You might be surprised to find strong balance sheets in all cases.

 

Debt-To-Equity

Cash

Long-Term Debt

MS

2.62

$353.07 Billion

$168.44 Billion

BAC

2.50

$567.49 Billion

$266.53 Billion

C

2.89

$796.57 Billion

$271.86 Billion

 

T = Technicals on the Stock Chart Are Mixed

Morgan Stanley has underperformed Bank of America and Citigroup for every timeframe listed below over the past three years. It doesn’t matter if Morgan Stanley is a direct competitor or not; you want to make the best investment.

 

1 Month

Year-To-Date

1 Year

3 Year

MS

18.94%

2.46%

22.99%

-32.09%

BAC

22.27%

3.10%

107.40%

-19.51%

C

20.98%

4.65%

46.32%

25.34%

 

At $19.58, Morgan Stanley is currently trading above all its averages.     

50-Day SMA

17.47

100-Day SMA

16.91

200-Day SMA

16.14

 

E = Earnings Have Been Disappointing

Earnings have been disappointing as well as unpredictable. EPS has also failed to reach its 2007 level. Revenue has been climbing since 2009, but it’s still nowhere near what it was in 2007/2008. Ironically, this can be looked at as a positive because it shows that there is a lot more room for growth, even though that growth has already been achieved in the past.

 

2007

2008

2009

2010

2011

Revenue ($)in billions

83.76

58.40

22.49

30.49

32.05

Diluted EPS ($)

2.90

1.39

-0.77

2.63

1.23

 

When we look at last quarter on a YoY basis, we see a significant decrease in revenue and earnings. However, this didn’t faze investors much.

 

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

11.42

-35.00M

8.54

8.44

6.83

Diluted EPS ($)

1.15

-0.04

-0.06

0.29

-0.55

 

T = Trends Might Support the Industry

This industry has a lot of support behind it from some of the most powerful institutions in the world. Lenient regulation and policies that benefit banks have allowed many companies to exceed expectations on a regular basis over the past few years. In 2013, this trend will likely slow, and banks will have to rely more on organic growth. That doesn’t necessarily mean an end to the bull run. It just means that we may be closer to the top.

Conclusion

Based on the current and future environment, it’s not likely that Morgan Stanley will soar or get crushed in 2013. However, it’s possible that the bigger players in the industry can pull Morgan Stanley higher. Momentum is also strong at the moment.

Based on all factors, Morgan Stanley receives a rare recommendation, which is a short-term OUTPERFORM.

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