Morgan Stanley (MS) has been trading in the range of $21.53 – $27.17 over the past 30 days, showing support around $24.30 and resistance in the $27.80 range. The stock is trading above the 50-day moving average and above the 200-day moving average, with momentum and RSI indicators showing short-term bearish movements and overbought conditions.
THE FUNDAMENTALS
MS’s short term bearish technical indicators are supported by weak fundamentals, as well.
The firm shifted its wealth-management advisers, who work outside the U.S., into the institutional securities unit. Including those people, the company’s total number of so-called global representatives fell to 16,703 at the end of March from 17,193 a year earlier.
MS P/E stands at 52.01, which is well above the industry average of 22.67 and above the S&P 500 average of 16.70. The stock is currently trading 5% above its intrinsic value of $25.93, which suggests that the stock is overvalued at these levels. MS’s current Price/Sales of 1.94 is above the industry average of 1.56, and the beta of 2.44 implies higher volatility of the stock with respect to the S&P 500. MS’s total debt/equity is 280%, which is not acceptable for the Tradespoon model. MS pays $0.20 or 0.70% dividend, and has gained 42.05 year-to-date.
OPTIONS TRADE IDEA
Technical and fundamental indicators both show short-term bearish signals for MS.
Investors should consider the following debit put spread:
Buy July 2013 26.00 Puts at $1.10 and sell the July 2013 25.0 puts at $0.75.
The net debit to start is $0.35, and we recommend holding until spread price reaches $0.70. This strategy will allow you to collect time premium for out-of-the-money short puts and decrease the overall cost of the initial investment.
