Microsoft overlooked and ready to pop; Meta crowded and ready to drop - CNBC

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Microsoft (MSFT) is due for a pop, while Meta Platforms (META) is due for a drop. That's the conclusion of a new Morgan Stanley research report, which makes us feel really good about where we stand on both Club stocks. Each quarter, Morgan Stanley looks at under-owned stocks and over-owned stocks — basically which ones are overlooked and ready for a hot streak and which ones are crowded and ready to cool off. At the end of the third quarter, Microsoft became the most under-owned large-cap technology stock, according to analysts, dethroning fellow Club name Apple (AAPL). As if on cue, Microsoft closed at a new record high Monday, extending its year-to-date gains to nearly 58%. We're bullish on Microsoft given its dominance in bringing artificial intelligence to its productivity products and its cloud. However, Morgan Stanley said Meta kept its most over-owned crown — and coincidently, its shares closed lower. Monday's decline was our signal in a very overbought market to trim our position in the stock, which has soared more than 178% in 2023. The Club's small Meta sale was about keeping the position under a 5% weighting in our portfolio and not reflective of any thesis change. Consistent with our trade we knocked Meta down to our wait-for-a-pull-back-to-buy 2 rating . Morgan Stanley's under-owned and over-owned designations are based on the average weighting of the companies' shares among the top 100 actively managed institutional portfolios compared to the S & P 500 weightings of their stocks. The analysts have found a "statistically significant relationship" between levels of active ownership relative to the market and future performance. MSFT YTD mountain Microsoft (MSFT) year-to-date performance Looking at the 15 tech names that Morgan Stanley covers, Microsoft's active institutional portfolio weighting decreased by 33 basis points quarter-over-quarter — exiting the three months ended in September at 4.3%. Microsoft's S & P 500 weighting declined by 29 basis points sequentially to 6.5%. As a result, the spread between Microsoft's index and active ownership weightings widened by 4 basis points to negative 2.21%. Microsoft has been able to capture the top under-owned because "sentiment on Apple has turned more mixed after a bearish [September quarter], as the potential for a negative ruling in the DOJ vs. GOOGL case and fears around China demand are being offset by iPhone build stability, record GMs, and Services upside," the analysts wrote. To be sure, Morgan Stanley maintained an overweight rating on Apple shares. Microsoft and Apple aren't the only Club names on the under-owned, ready-for-a-pop list. Nvidia (NVDA), Amazon (AMZN) and Alphabet (GOOGL) were all featured as well. META YTD mountain Meta Platforms (META) year-to-date performance Conversely, Morgan Stanley said Meta's average active institutional ownership increased by 18 basis points quarter-over-quarter. It was the only name where institutional ownership was greater than its S & P 500 weighting, which was just under 2%. That resulted in a positive 0.68% spread and status as the most over-owned for another quarter. Despite the historical over-owned, ready-for-a-pullback relationship, the analysts maintained their buy-equivalent overweight rating on the social media giant. They said the market is still "underappreciating META's multi-year ad revenue durability across Reels, click-to message and core ads." They also see "material incremental" return on invested capital (ROIC) from AI investments, making META the "cleanest AI winner" for 2024. Morgan Stanley also said other Club names such as Salesforce (CRM), Oracle (ORCL) and Broadcom (AVGO) were over-owned as well. Bottom Line The report from Morgan Stanley doesn't change our investment thesis on Microsoft or Meta. We're long on shares of both tech giants regardless of whether they're under-owned or over-owned. If anything, the analysts' research reiterates the Club's view that Microsoft stock has more room to run on its generative AI efforts. Microsoft's huge investments into the nascent tech have proven to be successful so far, with the company posting its biggest earnings beat in over two years back in October. We're especially optimistic about the massive long-term growth prospects from its cloud computing segment, Azure. As for Meta, it has been over-owned for several quarters. This hasn't changed the stock's exceptional outperformance throughout the year, which allowed us to book some profits Monday. We're bullish as the company continues to focus on CEO Mark Zuckerberg's "year of efficiency" and overall improvement in profitability. We saw this during the company's recent earnings last month when key drivers of success were Meta's improved monetization of Reels, which should be another tailwind for revenue. (Jim Cramer's Charitable Trust is long MSFT, META, AMZN, NVDA, GOOGL, CRM, ORCL, AVGO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Justin Tallis | AFP via Getty Images

Microsoft (MSFT) is due for a pop, while Meta Platforms (META) is due for a drop.

That's the conclusion of a new Morgan Stanley research report, which makes us feel really good about where we stand on both Club stocks.

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Microsoft overlooked and ready to pop; Meta crowded and ready to drop - CNBC
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Microsoft overlooked and ready to pop; Meta crowded and ready to drop - CNBC

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