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What Does Morgan Stanley’s ‘Fallen Angels’ Strategy Entail?

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Morgan Stanley’s “fallen angels” strategy

Morgan Stanley’s (MS) “fallen angels” strategy favors companies that are part of “secular growth names that have hit execution speed bumps or model transitions, but now have re-based forward expectations, face easier comparisons and have seen valuations come in materially over the past year.”

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This strategy supports stocks like Palo Alto Networks (PANW) and Splunk (SPLK). According to estimates from Bank of America (BAC), the share prices of these stocks are expected to rise 20% in the next one-year period.

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Palo Alto Networks

Palo Alto Networks (PANW) is currently trading at $156 with a price-to-earnings multiple of -60.17x. This indicates that its earnings growth is in the negative zone. However, revenue growth of this stock is in the positive zone and has met market expectations (QQQ) (VFINX). The stock made a 52-week high of $194.73 and a 52-week low of $111.09. The stock returned -10% on a YTD (year-to-date) basis as of September 28, 2016, and returned nearly 53% over a two-year time period.

Splunk

Splunk is currently trading at $57 with a price-to-earnings multiple of -22.10x. This indicates that its earnings growth is in the negative zone. However, the company’s revenue growth is in the positive zone. The stock made a 52-week high of $66.90 and a 52-week low of $29.85. The stock gave a flat performance on a YTD basis as of September 28, 2016. The stock returned nearly 4.4% over a two-year time period.

In the next part of this series, we’ll analyze Morgan Stanley’s “overlooked value” strategy.

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