Top Stocks to Watch as Earnings Season Approaches, According to Morgan Stanley
As the anticipation for the upcoming quarterly earnings season builds, Morgan Stanley’s analysts have identified a select group of stocks that offer promising opportunities for investors. Their recent report highlights five companies poised for potential upside, each demonstrating unique strengths that align with broader market trends and consumer behaviors.
1. Yum China: Capitalizing on Sustainable Growth in the Chinese Market
Yum China, the parent company of iconic brands Pizza Hut and KFC in China, is recommended as a “must-own” stock by Morgan Stanley. Analyst Lillian Lou expressed confidence in the company’s business model and strong sales improvement outlook, especially ahead of its early August earnings report.
Key insights from Morgan Stanley include:
- Expectation of same-store sales growth (SSSG) pickup beginning in Q2 2025.
- Potential boost from increasing delivery orders acting as a short-term catalyst.
- Long-term growth prospects described as “sustainable,” emphasizing Yum China’s resilient position in a fast-evolving retail landscape.
This bullish outlook reflects a broader trend where urban Chinese consumers continue to embrace Western fast food, even as local competitors intensify. Yum China’s adaptability and innovation in delivery and digital ordering could be a significant growth driver, especially post-pandemic.
2. Starbucks: Brewing Stability Amid Market Uncertainties
Starbucks remains a focus for Morgan Stanley, with analyst Brian Harbour pointing to positive signs of sales stabilization in the U.S. while recognizing the overall setup may lack short-term excitement. Patience, however, could be rewarded as the coffee giant refines its turnaround strategy.
Morgan Stanley highlights:
- Evidence of sales stability that bolsters investor confidence.
- A continuing narrative of strategic turnaround, offering clarity on Starbucks’ future direction.
- Lower spot coffee prices creating a favorable margin environment.
- Strong investments in international markets, highlighting growth diversification.
Given Starbucks’ deep-rooted brand loyalty and substantial global footprint, its recovery and growth are important indicators of consumer spending trends, especially in premium experiences.
3. AT&T: A Telecom Titan Navigating Industry Changes
Telecommunications giant AT&T has earned reestablishment as a top pick, thanks to robust fiber network expansion and tax advantages that shield it from potential industry slowdowns. Analyst Benjamin Swinburne increased the price target from $31 to $32 per share, underscoring confidence in the company’s trajectory.
Highlights include:
- Fiber infrastructure growth signaling long-term revenue streams.
- Lower cash taxes enhancing financial resilience.
- Outperformance compared to peers, despite broader wireless sector pressures.
AT&T’s upcoming earnings report on July 23 will be closely watched by investors as a bellwether of the telecom sector's health, particularly its ability to innovate amid 5G competition and evolving consumer demands.
4. Clearwater Analytics: Positioned for Catalytic Growth
Clearwater Analytics stands out for its combination of current tactical weakness and the likelihood of favorable upward estimate revisions. Morgan Stanley sees a “wall of worry” surrounding acquisitions and exit rates, creating a compelling entry opportunity before earnings beats anticipated in September.
5. O'Reilly Automotive: Navigating Tariffs with Pricing Power
O’Reilly Automotive benefits from a favorable industry backdrop and demonstrates resilience in a challenging tariff environment due to strong pricing power and strategic purchasing leverage. Historical data shows consistent same-store sales growth and margin expansion during tariff hikes in 2018-2019.
- 3-4% same-store sales growth during past tariff periods.
- Gross margin improvements of approximately 35-45 basis points year-over-year.
- Benefits derived from improved acquisition costs and a favorable mix of “Do It For Me” (DIFM) services.
This robustness offers reassurance to investors wary of global trade tensions impacting supply-chain-reliant sectors.
Contextual Analysis: What This Means for Investors in 2025
These five stocks provide a snapshot of broader economic currents shaping today’s market landscape. From the tech-enhanced fiber networks underpinning AT&T’s expansion to the evolving consumer habits boosting fast-food and coffee chains in Asia and the U.S., the themes of digital adaptation and steady revenue diversification come through clearly.
Policy Considerations: It’s worth noting that telecom infrastructure, such as AT&T’s fiber growth, aligns closely with recent U.S. federal infrastructure bills aimed at expanding broadband access. This regulatory backdrop could further support AT&T’s market position.
Meanwhile, companies like Yum China offer a window into the complexities of U.S.-China economic relations, where consumer demand and geopolitical risk intersect.
Editor’s Note
As earnings season unfolds, Morgan Stanley’s targeted stock picks illustrate key sectors where resilience and innovation meet market opportunity. Investors should look beyond short-term volatility and assess these companies’ strategic positioning and market fundamentals. Questions remain about how macroeconomic pressures, such as inflation and global supply-chain disruptions, will weigh on earnings forecasts. Yet, companies with adaptable business models and robust growth narratives may well lead the market’s next chapter.
