Big Tech - the stocks with a heavy presence in global indexes, and front and center in investors' debate over what to get out of before the market turns south - is still underowned, Morgan Stanley says in a quantitative dive into large-cap institutional ownership.
That leaves the firm more bullish on the big names.
Active portfolio weights for Apple , Microsoft and Amazon.com are 1-2 points below their S&P 500 weighting, the firm's tech analysts note. And its analyst shows a positive correlation between low active ownership (vs. S&P 500) and future performance.
Morgan Stanley looks at the ownership data for top tech companies every quarter, and as of Q3, those names are showing record gaps between active and passive ownership.
It's those times that stocks experience a technical pull higher when active ownership trails the market that much, and vice versa. And in the case of Microsoft, Apple and Amazon, in particular, they've gotten increasingly more underowned over the past two quarters.
Looking stock by stock, it's bullish on Apple (AAPL) for 2022 as it says "investors underappreciate the sustainability of iPhone growth and the defensibility of Services growth long-term." iPhone upgrade intentions look strong on a blended basis, and while there is some increased risk to App Store growth from the court's injunction, Morgan Stanley says its data show less than 2 in 10 Americans (and less than 4 in 10 Chinese consumers) would be willing to pay developers directly for mobile apps, preferring the App Store approach.
Microsoft (MSFT) is a "rare combination of strong secular positioning and reasonable valuation within the software space." It's pushing double-digit revenue growth with building momentum across cloud and hybrid solutions, combined with improving gross margins and a positive opex growth profile. And it still trades at a discount to peers, the firm says.
A guide down in profits from Amazon.com (AMZN) driven by fourth-quarter investment "speaks to the higher operating margin pressure on the retail business from more hiring, higher hourly labor costs, process inefficiencies, freight costs and higher content spend," Morgan Stanley says. And while part of that investment is tied to "catching up" to unusual 2020 demand, some of it's about new initiatives to build durable multi-year growth, it says.
Going forward it's focusing on more evidence for traction of third-party logistics (and/or faster share gains in same-day cities), or lower-than-expected incremental profit pressure from the investment spending.
Other stocks, meanwhile, are showing the opposite dynamic on active/passive ownership - notably Qualcomm and Intuit . There's room for optimism with those too, the firm says.
Qualcomm's (QCOM) active weighting is about 60 basis points above its S&P weighting. The firm's staying optimistic, with "adjustments to expectations likely to come as 5G adoption growth matures." And outside of handsets and RFFE, Morgan Stanley says it's "excited" about the prospects of diversifying business in Autos and Internet of Things.
Intuit's (INTU) average portfolio concentration has hit an all-time high and is well above its S&P 500 weighting. "It appears Intuit's improved growth and margin profile exiting the pandemic has resonated with institutional investors, resulting in the stock being overowned vs. peers."
The new strategy to focus on higher-value solutions is driving the top line and an improved margin profile, Morgan Stanley says, and it kicked off fiscal 2022 with a beat-and-raise quarter that "reinforces our believe Intuit is set up for beat-and-raise quarters thru FY22."
The Technology Select Sector SPDR ETF (NYSEARCA:XLK), whose top two holdings are Microsoft and Apple, has been outpacing the S&P 500 and rallied to an all-time high Monday on the back of heavy gains in those stocks.
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