Morgan Stanley has identified three stocks that could outperform as the second-quarter earnings season gets underway. The Wall Street bank highlighted GE Vernova (NYSE: GEV), Lam Research (NASDAQ: LRCX), and United Airlines (NASDAQ: UAL) among its top picks, citing expectations that they will deliver strong quarterly earnings.
GE Vernova
GE Vernova stock has done well this year, helped by the rising demand for power equipment amid the artificial intelligence boom. It has soared by 61% this year and by nearly 100% in the last 12 months.
Recently, however, the stock has wavered and now sits a few points below its all-time high. Even so, Morgan Stanley analysts believe that the company will bounce back after its earnings on July 22. It expects it to publish stronger-than-expected numbers, helped by its new gas turbine contracts.
The management has already hinted that it will sell out its gas turbines reservations through 2030. Morgan Stanley’s Michael Wilson said:
“Capex is broadening beyond data centers and reshoring progress suggests the U.S. industrial economy may be entering a sustained growth cycle as international production becomes more expensive than domestic.”
MarketBeat data shows that the average target for GEV stock among analysts is $1,089, slightly above the current $1,067. Bernstein has a target of $1,206, while Jefferies recently lowered the target to $1,210 from the previous $1,350.
United Airlines
Morgan Stanley is also bullish on United Airlines as it expects the giant to issue a positive forward guidance for the rest of the year. Its stock has jumped by 7% this year and by 43% from its lowest point this year. This rebound happened as the US and Iran started their ceasefire, which brought jet fuel prices lower.
The risk, however, is that the two countries have resumed their fighting, pushing oil prices higher. Brent and WTI have all jumped to over $80 this week, which will translate into higher jet fuel prices. Morgan Stanley wrote:
“Airline demand and booking intent remain healthy, with seven consecutive price increases absorbed without demand destruction. With oil prices moving lower, airlines are unlikely to roll back pricing, though sustained demand will remain the key test.”
Analysts are largely bullish on the stock, with those from Susquehanna, Cowen, Goldman Sachs, BMO, and Bernstein boosting their targets this month.
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Lam Research
Morgan Stanley analysts are also bullish on Lam Research, a company whose stock has more than doubled this year. After hitting a record high of $437 in June, Lam shares have dropped by 20% to the current $346.
Morgan Stanley believes that the company will release better-than-estimated revenue and earnings. It will then boost its earnings per share as it has done in the past. The statement said:
“AI demand remains robust with rising token prices and continued strength across the ecosystem despite recent market pullbacks. New equipment orders are improving.”
Analysts are also bullish on Lam Research even as its valuation concerns remain. The company has a forward price-to-earnings ratio of 62, much higher than other top companies like Nvidia, Micron, and SanDisk.
Stifel raised its target from $325 to $425, while Needham boosted the target from $300 to $390. Other analysts who boosted their target for the shares are from Mizuho, Susquehanna, and Cantor Fitzgerald.
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