Morgan Stanley says deal-making is returning to Wall Street and gives best stocks to play trend

Published Thu, Jun 27 202412:28 PM EDTUpdated Thu, Jun 27 20241:11 PM EDT

Morgan Stanley sees a comeback in Wall Street deals underway — and expects some financial stocks to reap the benefits. Analyst Andrei Stadnik pointed to the fact that completed mergers and acquisitions are up 16% in the second quarter compared to the same period a year prior. That bodes well for a variety of asset managers, banks and advisors that benefit from a landscape with more deal-making, Stadnik said. "2024 marks the start of M & A recovering from multi-decade lows," he told clients. Morgan Stanley's financials conference earlier this month bolstered the fact that the "capital markets recovery is firmly on track, even with not all of the component parts firing up," Stadnik said. High borrowing costs have cooled demand for the broader deals space in recent years, but JPMorgan hiked its second-quarter investment banking revenue guidance, which is a promising sign. Still, the bank also acknowledged that an interest rate cut in the U.S. and the return of deals led by sponsors would help volume further rebound. However, Goldman Sachs said sponsor-led mergers and acquisitions do not necessarily need a decrease in interest rates to take off. That is because sponsors have $1 trillion to $2 trillion of cash they need to deploy. Given this encouraging backdrop, Stadnik offered some ways to play the rebound in deals within the U.S. stock market. Here are some of his ideas: Within asset managers, Stadnik called Blackstone an "under-appreciated" beneficiary of a better backdrop for the macroeconomy and capital markets. Morgan Stanley's wealth division added a position in the stock to its global dividend model this week, noting it offers "exposure to a best-in-class private market franchise at an attractive valuation." Blackstone shares have bucked the broader market's rise this year, with the stock down more than 5% in 2024. That takes a chunk out of last year's surge of more than 76%. The majority of analysts polled by LSEG have a hold rating on the stock. Their average price target implies shares can regain more than 3% over the next 12 months. Stadnik said a capital markets renaissance is one key reason to be overweight money center banks. Of this group, he called Goldman Sachs the "purest play" on this theme. Goldman Sachs shares have climbed more than 15% this year. Despite having a buy rating, the average analyst surveyed by LSEG anticipates that the stock will pull back by almost 1% in the next year. GS YTD mountain Goldman Sachs, year to date Elsewhere, Stadnik deemed Evercore as the best idea in U.S. boutique advisors for riding the wave with the return of large-cap deals. Shares have risen more than 14% this year. Analysts are split between buy and hold ratings, according to LSEG. The average price target suggests about 5% in upside.