Morgan Stanley-Thematics What to Buy Sell-110041889

Investment Rating - The report maintains a positive outlook on key themes, particularly Obesity, AI, and Defence, indicating strong fundamentals and potential for continued growth [3][7]. Core Insights - The report emphasizes the importance of not selling secular themes too early, as they have historically delivered significant returns, averaging 66% in their first year and 17% in the second year [3]. - Among the leading themes, Obesity is highlighted as the strongest performer, with AI and Defence also showing promising fundamentals that justify their valuations [3][7]. - The analysis suggests that thematic stocks, particularly in Obesity, AI, and Defence, are experiencing earnings upgrades, which supports their current valuations [7]. Thematic Performance - The report categorizes thematic performance into three major themes: Tech Diffusion, Decarbonisation, and Longevity, aligning them with MSCI's thematic indices for better tracking [5]. - Obesity thematic stocks, led by companies like Novo and Lilly, continue to see upgrades, justifying their re-ratings over the past 24 months [8]. - AI and Robotics have seen significant EBITDA revisions of over 10% year-to-date, indicating strong performance and a re-rating close to 15% [8]. - Defence and Security have experienced modest re-ratings, with Defence showing greater earnings upgrades compared to Security, particularly in Europe [8]. Stock Selection - The report identifies 50 stocks globally that are included in multiple MSCI thematic indices, which have collectively outperformed the S&P 500 by over four times in the past decade [12]. - Multi-theme exposed stocks are considered reliable options for investors looking to outperform the market [12]. Market Conditions - The report notes that while China Tech is not a primary theme, it is experiencing 10% sales growth, suggesting a potential for higher valuation multiples [11]. - The analysis indicates that national budgets for Defence need to rise, and institutional investor positioning remains thin for key companies like Rheinmetall in Europe [7].