Morgan Stanley’s top stock ideas ahead of the February reporting season

About this update from Kmd Brands Limited

Investors are often intimidated by the research involved in using small and mid-cap companies in their portfolios. Typically, that's because it's far easier to stick to large-cap companies whose fortunes are well-documented. That said, if you wanted to dabble outside the S&P/ASX 200, this could be a good starting point. Morgan Stanley has released their top conviction small and mid-cap picks ahead of the February 2023 reporting season. Surprisingly, it’s a retail-heavy list, particularly given the high levels of inflation and rising interest rates we have witnessed in recent months, putting pressure on consumer spending. Retail demand and margins surprised on the upside in 2022, but Morgan Stanley believes that inflationary pressures and rising interest rates will dissipate savings buffers in 2023, and the advantages of reopening post-COVID will ease. Despite this, the broker has high conviction in the earnings potential of these names - and there’s a high chance you know and use at least some of their products. As Warren Buffett says, invest in what you know. In reverse order of preference, here they are. #4. City Chic Collective ASX:CCX The multi-channel plus-size women’s fashion retailer is rated as an equal weight by Morgan Stanley analysts, Joseph Michael CFA, James Bales and Chenny Wang. They believe it has long-term growth potential but will be challenged this year due to softening demand, increasing promotional activity (to encourage sales) and cost headwinds. They decreased the 12-month price target to $0.70 a share from $1.20. City Chic is currently going through an earnings downgrade cycle and has been sold off hard over the past year. Morgan Stanley downgraded its rating for City Chic last November. It was not alone with Macquarie and Ord Minnett also dropping their ratings.City Chic share prices v ASX200 for the past year#3. KMD Brands (Formerly Kathmandu Holdings) ASX:KMD The outdoor, lifestyle and sports retailer includes brands Kathmandu, Oboz and Ripcurl. Morgan Stanley downgraded KMD to equal weight from overweight due to the challenging consumer outlook and high levels of competition in outdoor and surf categories. It remains positive on the long-term outlook for the company due to resilient demand for its products and the potential for global expansion for its brands. Kathmandu is starting to gain traction in European wholesale channel...

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