Morgan Stanley Identifies Stocks With High Earnings Surprise Potential
Morgan Stanley has highlighted a new group of U.S. and European stocks that could deliver strong earnings surprises in the upcoming reporting season. The bank uses a quantitative framework that combines analyst ratings with forward-looking indicators to pinpoint potential outperformers.
A Data-Driven Strategy for Earnings Season
Morgan Stanley’s approach integrates several key metrics, including its Earnings Forecast Landscape, Earnings Quality, and broader forecast trends. These are combined into what the firm calls an “Earnings Surprise Composite,” designed to identify companies most likely to beat market expectations.
Strong Historical Performance of the Strategy
The bank noted that this strategy has delivered consistent results. Since 2024, it has achieved a pre-cost Sharpe ratio of 1.06 in the U.S. and 0.92 in Europe.
Looking at a longer track record, including the five years prior to its official launch, the model generated Sharpe ratios of 0.69 for U.S. stocks and 0.71 for European equities, demonstrating solid risk-adjusted returns over time.
Top US Stocks to Watch
Among U.S. equities, Morgan Stanley’s top picks include Western Digital, Citigroup, and RTX Corporation, all of which carry overweight ratings and score highly on the earnings surprise model.
Additional notable names include Apple, eBay, ConocoPhillips, and Roblox.
European Stocks With Strong Upside Potential
In Europe, ArcelorMittal leads the list with a top percentile score. Other high-ranking names include Barclays, ASML, Nokia, Banco Santander, ASM International, and UPM-Kymmene. All are rated overweight by Morgan Stanley.
Positioning for Earnings-Driven Volatility
The report suggests that combining quantitative analysis with traditional fundamental research can help investors better navigate earnings season. This is particularly relevant in the current environment, where differences in company performance remain significant and can drive sharp market reactions.
