NEW YORK (CNNMoney)
The U.S. economy is chugging along like a slow-moving train.
Morgan Stanley believes that slow pace means there's little risk of the economy derailing until 2020 -- or even beyond. That would make it the longest expansion on record and be great news for the stock market.
But not all stocks would respond the same to this moderate but persistent growth scenario.
Here are the 10 biggest stocks on Morgan Stanley(MS)'s list of "attractive investment opportunities" if the economy keeps growing.
American Express: American Express (AXP) makes money when people swipe their cards on everything from airline tickets to theme park trips. Spending would surely accelerate in a longer economic cycle, boosting AmEx revenue growth from 5% now to 8% or even higher, Morgan Stanley predicts.
Bank of America and Citigroup: If the economy remains on track, Bank of America (BAC)and Citigroup (C) would capitalize on stronger loan growth, improved margins and better expense ratios. Basically, they'd make a lot more money.
These banking titans would also have to set aside less money for loans that go bad during times of economic stress. While BofA is up 10% this year, Citi has lagged behind with just a 3% gain.
BlackRock: The world's largest asset manager is definitely cheering for a longer economic expansion. In that scenario, equities would most likely outperform fixed income. That plays right into BlackRock (BLK)'s hands because it is holding roughly $2.4 trillion of equities, making up more than half of its total assets under management. BlackRock would also benefit because its high-margin ETF business, iShares, is skewed heavily (80%) toward equities.
Caterpillar: There may be no member of the Dow as economically sensitive as Caterpillar(CAT). That's because it has significant exposure to everything from construction and mining to oil & gas and transportation. Caterpillar's organic growth is "highly correlated with global industrial production," Morgan Stanley said.
Facebook and Google: Companies tend to ramp up advertising spending when they are feeling more confident about the economy. That's huge for Facebook (FB, Tech30) andGoogle (GOOGL, Tech30), which generate nearly all of their revenue from ad spending.
These tech titans are beloved by Wall Street analysts (more than 80% have buy ratings on the stocks) because they are capitalizing on the rapidly-growing search and mobile display ad markets.
Schlumberger: Schlumberger (SLB) doesn't have the name recognition of the other stocks on this list, but it's got the most support from analysts. A whopping 94% of analysts covering the oil services company have a buy rating on it and the average 12-month price target of $120.90 implies a sizable 26% rally from current levels.
Schlumberger "should be a prime beneficiary of the increased energy production that comes with economic expansion," Morgan Stanley wrote.
Union Pacific: Union Pacific (UNP)'s 43% surge in 2014 has been driven by positive trends in the railroad industry, including solid volume growth and productivity gains. Expect those bullish trends to continue if the economy continues to expand.
"We see relatively few company-specific risks that could derail the company's earnings growth potential," Morgan Stanley wrote.
Walt Disney: The home of Mickey Mouse has a nice one-two punch tied to the economy. First, it stands to gain from stronger ad spending on its ESPN and ABC TV networks. Secondly, Disney (DIS) cashes in when consumers spend more money at its theme parks, an area the company has been investing heavily in recently, and on merchandise.
Methodology: Morgan Stanley compiled the list by focusing on fundamental business models, not valuations. The firm only considered stocks it rates overweight or equal-weight and then applied a quantitative tool that factors in expected performance over the next two years.
Morgan Stanley said the stocks this process identified represent attractive opportunities over one, two and five year time horizons if the expansion continues to 2020.
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