Morgan Stanley identified a range of European stocks with strong balance sheets, lots of cash or high shareholder returns. The bank said its latest quarterly results show a slowdown in sales, earnings and cash flow “as companies brace for higher interest rates and a less certain macro environment,” but it identified several that appear to be bucking the trend. according to a research note from the bank. CNBC on Wednesdays. The bank analyzed more than 400 companies trading on the MSCI Europe index to create different stock screens. On a list of stocks with strong balance sheets, Morgan Stanley included retailers Next, H&M and JD Sports, as well as pharmaceutical company Sanofi and biotech company Genmab. It also named aerospace companies Airbus and MTU Aero Engines, software company SAP and semiconductor company STMicroelectronics. We looked for companies with strong balance sheets and ample liquidity that generate a return above their cost of capital. The bank said these companies also have expected free cash flow growth of more than 5% over the next two years. High cash flow and shareholder returns The bank also screened for companies with ‘resilient high free cash flow’. “Self-financing companies should be better able to weather any protracted macroeconomic weakness, deploy capital effectively and seize opportunities as they arise,” said Morgan Stanley. The list included oil companies BP and TotalEnergies and utility Centrica, as well as advertising groups WPP and Publicis Groupe. Also on the list are automaker Stellantis and steel supplier Tenaris. “Companies rich in cash and high returns on free cash flow should also receive better downside protection while offering upside potential if management is able to deploy its cash effectively,” the bank said. Morgan Stanley also screened for stocks with the highest total shareholder returns, naming InterContinental Hotels, materials company Holcim, fashion company Burberry and jewelry company Pandora among its favorites. These companies have also “expected positive free cash flow and net income growth over the next two years,” the bank said. — CNBC’s Michael Bloom contributed to this report.
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Morgan Stanley names cash-rich stocks with ‘downside protection’