Morgan Stanley’s favorite picks for a trade ahead of earnings

Stocks including Cloudflare and Walt Disney could get a boost after their upcoming quarterly earnings reports, according to Morgan Stanley. The Wall Street bank expects a range of earnings estimate changes for the rest of 2025 as a result of fourth quarter results. “[W]e think dollar strength will lead to higher performance dispersion across the market this earnings season,” analysts led by Michelle Weaver wrote in a note to clients on Wednesday. “High dispersion typically fosters a robust stock-picking environment.” Consensus fourth-quarter estimates for the S & P 500 call for earnings per share to rise by 11% year-over-year on sales growth of 3%, with the earnings forecast little changed since Q3 results were reported in October, while sales have been revised down by more than the historical average. Against this backdrop, Morgan Stanley highlighted a basket of stocks that it recommends in the short term, and that it expects to move higher after Q4 earnings are reported. Take a look at some of the companies below: Morgan Stanley holds an optimistic view on Walt Disney Co. ahead of the theme park and movie giant’s earnings on Feb. 5. Disney was named a top pick for 2025 by Morgan Stanley, which rates the stock overweight and said in a December note that it expects substantial streaming profits in the future. Disney is also likely to benefit from another strong year of advertising growth in the U.S., the bank said. Between streaming and advertising, “[t]he beneficiaries and victims of these trends are quite clear today and tend to align with the ‘winner-take-most’ scale benefits of Internet businesses throughout the value chain,” Morgan Stanley analyst Benjamin Swinburne said in a Dec. 18 note. “We see [Disney] as having the greatest potential to join this group as a content distribution leader – while at the same time benefiting from consumer demand and related growth at its experiential assets.” Disney shares are little changed so far in January, but have soared nearly 22% over the past six months. DIS 1Y mountain Disney stock performance. Cloudflare could also see gains after reporting earnings next month, according to Morgan Stanley. Shares of the cloud services provider have climbed more than 40% over the past three months and hit a new 52-week high on Thursday. The stock has already seen an AI-fueled run of more than 15% in the first three weeks of the new year, through Thursday. Cloudflare is set to report earnings on Feb. 6. The San Francisco-based company in early November forecast fourth-quarter revenue would come in below consensus analyst estimates due to increased competition in the cybersecurity market. Less capital spending amid greater economic uncertainty and higher interest rates also hurt Cloudflare’s business, it said. But Morgan Stanley this week said that its Q4 check of resellers “suggest a strong finish to 2024,” and that 2025 estimates “are mostly achievable.” Wells Fargo is also bullish on Cloudflare, naming it a top pick for 2025 in a Jan. 7 note and expecting the $45 billion market cap company will outperform revenue expectations throughout 2025. Other names Morgan Stanley believes could get a boost from their latest quarter earnings include Vertex Pharmaceuticals , Zebra Technologies and and taser maker and weapons manufacturer Axon Enterprise . Axon was the S & P 500’s fifth-best performer in 2024, returning about 130%.