By Ian Salisbury

As the outlook for stocks grows increasingly uncertain, investors should seek out companies with strong, stable profits and solid business franchises -- the factor known as quality.

So far, 2025 has turned out to be a rocky year for equities. After an initial surge of optimism that President Donald Trump would enact growth-fueling tax cuts, fears over a tariff war with Mexico and China sent stocks tumbling.

The S&P 500 hit correction territory on Wednesday, representing a 10% decline from its previous peak -- the record high it struck less than a month ago. Stocks rebounded slightly on Friday, with the index up about 0.8% in early trading. But investors are still jittery. The CBOE Volatility Index, or Vix -- informally known as the market's "fear gauge" -- is at 24, up from about 15 a month ago.

Selling out of stocks, however, could be a mistake -- most corrections don't widen into bear markets. And though the economy is slowing, it's still healthy. A better bet would be to focus on stocks with the strongest fundamentals, like earnings, low debt and healthy dividends.

"Our view remains that high-quality stocks are the place to be given elevated uncertainty," a Morgan Stanley team led by equity strategist Michelle Weaver wrote in a note Wednesday. To that end, Morgan Stanley leaned on its team of stock analysts to identify 30 stock picks it says can shine over the next two years.

"The main criterion is sustainability -- of competitive advantage, business model, pricing power, cost efficiency, and growth," wrote Morgan Stanley. Although there is one big caveat -- the stocks aren't necessarily cheap. "We sought to identify the best franchises, not the most undervalued stocks."

Which stocks made the cut? The list includes several high-flying tech stocks, as well as famous-name consumer brands and financials, among others.

Four of the Magnificent Seven tech stocks made the cut, including Amazon.com, Apple, Meta Platforms, and Microsoft. While Morgan Stanley didn't reveal its full methodology, the team assigned each stock pick a survey score. Microsoft scored among the highest on the list.

It's hard to argue: As Morgan Stanley notes, Microsoft benefits from two things investors love: a diversified product line-up and recurring revenue streams, not to mention the potential to benefit from artificial intelligence.

Outside of the tech sector, the list included plenty of solid consumer stocks, such as Chipotle Mexican Grill, Coca-Cola, Walmart...and Ferrari.

While Ferrari, a recent Barron's stock pick , might seem like an outlier, its loyal customers and long wait lists mean investors can count on predictable profits.

"We believe Ferrari exhibits a unique moat with a world renowned brand and a 12-24+ month customer order book," the analysts wrote.

Unfortunately, neither Microsoft nor Ferrari stock is particularly cheap, even after the market's recent selloff. Microsoft trades at more than 29 times estimated 2025 earnings and Ferrari at more than 47 times. For context, the S&P 500 as a whole trades at just 20 times, according to FactSet.

Morgan Stanley did recommend several stocks that trade at below-average price-to-earnings ratios -- especially among financials -- which could hold up relatively well if the trade war continues, given their businesses aren't directly exposed to tariffs.

Among those with the lowest P/E ratios on Morgan Stanley's list are Citgroup, which trades at 9 times 2025 earnings, and Citizens Financial, which trades at 10 times.

Citigroup should benefit from new Basel capital rules that could help it buy back stock, wrote Morgan Stanley analysts. Meanwhile CEO Jane Fraser has streamlined the company by cutting 20,000 jobs and simplifying its organizational structure, the analysts said.

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 14, 2025 12:37 ET (16:37 GMT)

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