10 stocks set to soar on the back of strong earnings as the gap between winners and losers grows: Morgan Stanley

• Fourth-quarter earnings have pleased investors and lifted the market higher.
• A stronger US dollar could cause some companies to separate from the pack.
• Here are 10 stocks that Morgan Stanley analysts are most bullish on right now.

Earnings have been strong across the board so far this quarter, though that could change soon.

Corporate profits appeared to end 2024 on a high note, as they're expected to rise 11% from the fourth quarter of 2023, Morgan Stanley recently found. That's even more impressive than the high-single-digit rate that UBS and Bank of America were tracking early in earnings season.

However, Morgan Stanley's top minds expect the gap between winners and losers to grow in the coming weeks. That may sound intimidating, but it's actually promising for active investors.

"We expect a relatively wide dispersion of EPS revisions during earnings season, which typically fosters a robust stock-picking environment," Morgan Stanley strategists led by Michelle Weaver wrote in a January 22 note.

As for what will drive a wedge between stocks, Weaver pointed to the strengthening US dollar. The US dollar index is up about 9% since September as investors have become more confident about economic growth and, by extension, less sure about interest rate cuts.

A relatively strong dollar is a headwind for large, multinational companies based in the US since their profits generated overseas are worth less when converted back into the home currency. This dynamic could make smaller companies, which are already cheaper and more attractive. Either way, Weaver expects more firms to highlight currency moves in their fourth-quarter commentary.

Other factors to watch this quarter, according to Morgan Stanley, are as follows: profit margins and how much they can expand after a strong year, how businesses respond to the possibility of elevated interest rates, consumer sentiment and how it has changed after the election, the impact of Trump's impending tariffs, and sales growth, which is only expected to hit 3% in Q4.

10 top stocks to buy this quarter

After outlining fourth-quarter trends to watch, Morgan Stanley researchers shared 14 stocks set for big moves this quarter: 10 that their analysts love, and four that they're staying away from.

Below are the 10 companies they're bullish on in alphabetical order, along with what investors should know about them. That includes each firm's ticker, market capitalization, price target from Morgan Stanley, upside to that target, 2025 earnings growth estimate, forward price-to-earnings (P/E) ratio, sector, Q4 earnings date, and selected commentary from Morgan Stanley.

1. Axon Enterprise

Ticker: AXON

Market cap: $46.3B

Price target: $700

Upside to target: 14.1%

2025 earnings growth estimate: 20.9%

Forward P/E: 100.1x

Sector: Technology

Q4 earnings date: Feb. 25

Commentary: "We expect the company to execute against its bookings expectations. Specifically, AXON expects 2H24e bookings to outpace cumulative FY23 bookings. We think this can support FY25 revenue guidance of ~25% of growth, ahead of current Street consensus of ~23%. More qualitatively, we have seen several announcements intra-quarter supportive of our view that AXON will continue to gain traction beyond its core TAM [total addressable market] in US state and local law enforcement."

2. Cloudflare

Ticker: NET

Market cap: $42.5B

Price target: $140

Upside to target: 13%

2025 earnings growth estimate: 16.2%

Forward P/E: 144.1x

Sector: Technology

Q4 earnings date: Feb. 6

Commentary: "We believe 2025 could be a breakout year for Cloudflare as improving sales productivity/new GTM leadership, multiple product cycles, and emerging AI tailwinds drive more meaningful upward estimate revisions throughout the year. While recent outperformance in shares likely means higher expectations, we expect the company to deliver a strong Q4 result and an in-line FY25 outlook that appears conservative based on strong bookings exiting FY24."

3. Disney

Ticker: DIS

Market cap: $201.1B

Price target: $125

Upside to target: 12.6%

2025 earnings growth estimate: 7.8%

Forward P/E: 20.7x

Sector: Media

Q4 earnings date: Feb. 5

Commentary: "We believe a double-digit adjusted EPS growth business anchored by Disney's experiential and streaming assets is a business deserving a healthy multiple. Streaming and experiences increasingly represent the primary distribution and monetization platforms for Disney's content. ... We see a near-term re-rating opportunity anchored by our confidence in Disney's ability to accelerate operating income growth at its Experiences segment this year. We believe the company can reiterate confidence in this outlook on its upcoming earnings call."

4. Moelis

Ticker: MC

Market cap: $5.8B

Price target: $95

Upside to target: 22%

2025 earnings growth estimate: 181.4%

Forward P/E: 24.5x

Sector: Financials

Q4 earnings date: Feb. 5

Commentary: "Moelis stands to benefit most from comp ratio leverage as global M&A activity picks up. MC's comp ratio increased the most over the last several years and has the most room to inflect, driving significant earnings revisions. MC prioritized managing director retention during the cyclical downturn and leaned into hiring new MDs, in part through its hiring of 11 senior technology bankers from Silicon Valley Bank in April 2023. Moelis has shown an entrepreneurial culture that nimbly allows managing directors to carve out niches and capitalize on emerging sector opportunities, such as sports, media, and crypto."

5. Prosperity Bancshares

Ticker: PB

Market cap: $7.5B

Price target: $102

Upside to target: 30.1%

2025 earnings growth estimate: 16.1%

Forward P/E: 13.3x

Sector: Financials

Q4 earnings date: Jan. 29

Commentary: "Prosperity has one of the strongest NIM [net interest margin] expansion stories in our coverage universe. We estimate that Prosperity will expand its net interest margin by 35bps in 2025, the third most in our coverage universe, and more than three times the expansion that we expect for the median mid-cap Bank. The NIM expansion story is durable and does not rely on rates coming down in 2025, because it is driven by a predictable level of fixed asset repricing which is expected to continue over the next several quarters."

6. Synchrony Financial

Ticker: SYF

Market cap: $27.4B

Price target: $82

Upside to target: 16.4%

2025 earnings growth estimate: 26.6%

Forward P/E: 8.6x

Sector: Financials

Q4 earnings date: Jan. 28

Commentary: "The CFPB's credit card late fee rule (which would have represented a sizable impact to forward EPS), has been stalled in the courts since last spring. Our base case assumes this rule does not go through under this softer regulatory backdrop. With nearly a year of program enhancements (i.e. card APR increases, higher fees) under SYF's belt in the meantime, we expect the company's guide to bake in [the] benefit from these ongoing enhancements, driving our 2025 EPS 16% above consensus."

7. Vertex

Ticker: VERX

Market cap: $8.9B

Price target: $62

Upside to target: 8.8%

2025 earnings growth estimate: 23.3%

Forward P/E: 77x

Sector: Technology

Q4 earnings date: Feb. 3

Commentary: "We believe Vertex has a positive set-up heading into the company's first Investor Day on March 19th. We expect the management team to provide an informational overview on Vertex's products, market opportunities, and strategy. We believe this will help drive incremental investor interest in the name as we still get requests for introductory teach-in calls on the name. As such, we believe Vertex is still an under-the-radar name."

8. Western Digital

Ticker: WDC

Market cap: $23.7B

Price target: 93

Upside to target: 35.4%

2025 earnings growth estimate: N/A

Forward P/E: 10.7x

Sector: Technology

Q4 earnings date: Jan. 29

Commentary: "A rich catalyst path (two investor days), inexpensive valuation vs. peers (stock trades at a material discount to our SOTP [sum of the parts] assessment), and potential for numbers to be sufficiently derisked following the earnings release could lead to outperformance during the month of February. We continue to hear from investors positive on WDC's value that the potential for downward revisions post CQ4 earnings is a major hurdle to getting involved."

9. WW Grainger

Ticker: GWW

Market cap: $54.6B

Price target: $1,215

Upside to target: 8.3%

2025 earnings growth estimate: 9.7%

Forward P/E: 26.2x

Sector: Industrials

Q4 earnings date: Jan. 31

Commentary: "We see a positive set-up for GWW heading into Q4 earnings and believe the market will exit results more optimistic on the GM [gross margin] trajectory into Q1 '25. While consensus models Q4 GM up ~20 bps Q/Q which largely matches typical seasonality, we see scope for upside with GWW pushing incremental price in September (+vs sequential price cost). ... We anticipate the Sept. price increase to further enhance the price/cost profile, driving ~30bps margin expansion."

10. Zebra Technologies

Ticker: ZBRA

Market cap: $21.7B

Price target: $427

Upside to target: 1.4%

2025 earnings growth estimate: 16.7%

Forward P/E: 26.9x

Sector: Technology

Q4 earnings date: Feb. 13

Commentary: "We lean positively on ZBRA into CY25 as end-markets are improving, particularly around large customer demand, and retail capex budgets are healthier, dynamics we expect to be reflected in FY25 guidance. ZBRA's long-term growth rate has been stated at 5-7%, and with consensus already reflecting ~8% growth Y/Y, we think management confidence to maintain Street estimates as is should be enough to represent a positive catalyst."

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