Morgan Stanley Says S&P 500 Could Drop Another 10%

Technology

Wilson likes technology, which might come as a surprise since tech stocks are getting hit particularly hard. But the analyst is finally starting to see some value in the space.

“There’s plenty of high quality stocks in tech that are not that expensive,” he said. “And we have taken a lot of froth out there, so that’s a form of defensiveness that has some growth to it.”

Morgan Stanley has an overweight rating on Microsoft and recently raised its price target on the shares to US$372. With the stock currently trading at around US$300, that target implies potential upside of 24%.

Investors can also get exposure to this fast-growing sector through exchange-traded funds like the Vanguard Information Technology ETF (VGT) and Technology Select Sector SPDR Fund (XLK).

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Healthcare

Healthcare serves as a classic example of a defensive sector thanks to its lack of correlation with the ups and downs of the economy.

At the same time, the sector offers plenty of long-term growth potential due to favorable demographic tailwinds — particularly an aging population — and plenty of innovation.

Wilson also likes healthcare because “it’s cheaper than tech.”

Average investors might find it difficult to pick out specific healthcare stocks. But healthcare ETFs can provide both a diversified and profitable way to gain exposure to the space.

The Health Care Select Sector SPDR Fund (XLV) invests in a wide variety of healthcare giants — including Johnson & Johnson, UnitedHealth Group and Thermo Fisher Scientiging — and has returned more than 85% over the past five years.

If you’re looking for individual names, Morgan Stanley has issued overweight ratings on Eli Lilly and AbbVie with price targets of US$272 and US$142, respectively.

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REITs, consumer staples and utilities

Wilson also touched on three sectors for defensive investors who don’t necessarily require a growth component.

“If you go pure defense, it’s utilities and staples and REITs,” he said. “Of that group, I’d say we prefer REITs and staples more than utilities.”

REITs stand for real estate investment trusts — companies that own income-producing real estate and then pass the rent to shareholders through regular dividend payments.

For centuries, people have used real estate as a key vehicle to preserve and grow their wealth — particularly during periods of high inflation like we’re currently experiencing.

These days, you can even use an online platform to buy fractions of commercial properties, giving you a slice of the revenue and any price appreciation.

Companies in the consumer staples sector also stand out for their ability to deliver consistent dividends.

Case in point: Procter & Gamble, maker of Tide laundry detergent, Gillette razors and dozens of other household essentials, has increased its dividend for 65 consecutive years. Morgan Stanley has an overweight rating on the consumer products giant and recently raised its price target to $177.

Investors can also find plenty of recession-resistant names in the utility sector.

No matter what happens to the economy, people will still need to heat their homes in the winter and turn the lights on at night.

Morgan Stanley has overweight ratings on several utility stocks including American Electric Power and Atmos Energy.