Buy these five stocks ahead of earnings, Morgan Stanley says

Morgan Stanley analysts are bullish on several stocks ahead of their earnings reports, identifying AT&T, Yum China, Starbucks, O'Reilly Automotive, and Clearwater Analytics as "must-owns" or "overweight" picks. The firm cites AT&T's compelling risk/reward and fiber growth, Yum China's expected sales improvement and long-term potential, and Starbucks' US stabilization and turnaround narrative as key drivers. Additionally, O'Reilly Automotive is favored for its industry insulation and pricing power, while Clearwater Analytics presents a compelling opportunity due to potential estimate revisions, indicating further upside for these names.

Analysis

Morgan Stanley has issued a series of bullish, pre-earnings calls on several equities, highlighting distinct fundamental drivers for each. AT&T (T) was reinstated as a "Top Pick" with an increased price target of $32, citing its fiber growth and lower cash taxes as key factors that insulate it from a potential wireless industry slowdown, a thesis supported by the stock's 18% year-to-date performance. For Yum China (YUMC), analysts recommend buying the dip ahead of an expected sales improvement, viewing its business model as solid and reiterating it as a top pick with sustainable long-term growth, though a significant same-store sales growth uptick is not anticipated until Q2 2025. The outlook for Starbucks (SBUX) is more nuanced; while the firm sees signs of stabilization in the U.S. and a promising long-term turnaround narrative, it concedes the setup for the imminent quarterly report is not "overly compelling," suggesting patience is required. Finally, the firm identifies tactical opportunities in O'Reilly Automotive (ORLY), for its pricing power and insulation from tariffs, and Clearwater Analytics (CWAN), where recent weakness is seen as a compelling entry point ahead of expected upward estimate revisions and a catalyst-rich period.

Key Decisions for Investors

• Consider AT&T's compelling risk/reward profile, as its fiber growth and lower tax burden are viewed by the analyst as insulation from a potential wireless industry slowdown.
• Evaluate Yum China as a 'buy on the dip' opportunity based on expected sales improvements, but note that the significant same-store sales growth catalyst is projected for the second quarter of 2025.
• Approach Starbucks with a long-term perspective, as the investment thesis hinges on a 'turnaround narrative' and sales stabilization rather than an overly compelling setup for the upcoming quarterly report.
• Assess O'Reilly Automotive for its defensive qualities and pricing power in a dynamic tariff environment, and Clearwater Analytics as a tactical play on expected upward earnings revisions.