Lower-quality stocks have traditionally performed well at the start of the year.
But Morgan Stanley believes best-of-breed companies are the place to be now.
Here are 58 quality growth stocks to buy at the start of 2025.
Change always abounds in January, but some New Year's resolutions aren't worth sticking with.
Investors have historically gravitated toward lower-quality stocks in the first month of the year. Bank of America researchers recently found that firms with lower quality scores from S&P have outperformed at a 79% clip in January since 1987, versus a 50-50 hit rate in other months.
Bank of America
This so-called "dash for trash," in the words of BofA strategists led by Savita Subramanian, could stem from a willingness to go against the grain and give less-heralded companies a shot instead of simply shifting toward popular stocks and sectors.
But Morgan Stanley strategists say chasing lower-quality companies again may be a mistake.
In fact, Mike Wilson, who's the firm's chief US equity strategist, just devoted his weekly note published on Monday to extolling the virtues of high-quality stocks in this uncertain backdrop.
Morgan Stanley
"Our quality bias is rooted in the notion that we remain in a later-cycle environment, which is typically a backdrop that is consistent with outperformance of this cohort and the fact that relative earnings revisions for the high-quality factor are inflecting higher," Wilson wrote.
Morgan Stanley has suspected for years that this economic cycle is closer to the finish line than the starting point. The economic-surprise indexes Wilson and his team track have weakened lately, and soft data like confidence indicators are mixed despite a sizable post-election pop.
Morgan Stanley
However, unlike past years, the Wall Street giant isn't bearish. Morgan Stanley's S&P 500 target is lower than many of its peers, though that suggests that US stocks will rise about 10.5% in 2025. Still, they believe the year could get off to a rocky start as bond yields and the dollar rise.
"The correlation of equity returns to bond yields has flipped decisively into negative territory (yields up, stocks down and vice versa) — something we have not seen since last summer," Wilson wrote.
58 quality growth stocks to buy
Lofty interest rates don't benefit most companies, but higher-quality firms with healthy balance sheets should hold up better than their debt-riddled counterparts.
"We do see scope for broadening in leadership in 2025, but believe it will be concentrated in larger-cap, higher-quality stocks as we're entering a late-cycle extension as opposed to a new cycle," Wilson wrote.
In the note, Wilson and his colleagues highlighted a litany of quality stocks across three styles: cyclicals, defensives, and growth. All three cohorts have dozens of sound options, though it may be risky to invest in cyclical stocks in a late-cycle environment or defensives in a bull market.
With that in mind, here are the 58 high-quality stocks Morgan Stanley identified that fit into the growth basket. Interestingly, Bank of America noted that growth fund managers were underweight quality stocks heading into 2025.
Bank of America
Below is each company, sorted in alphabetical order by sector and within its sector, along with its ticker, market capitalization, price-to-earnings (P/E) ratio, sector, and industry.