Morgan Stanley (MS) shares have been hit hard over the past five trading days, falling nearly 10%, but we believe they’re absolutely worth buying at these levels. We have been adding to our Morgan Stanley position in the WIC portfolio, with the position now at 13.5% of our portfolio, the third biggest. We would not be hesitant to make it the biggest position in our portfolio at much lower levels, because we believe this is a best-of-breed, stable growth financial services company trading at very reasonable price-to-earnings multiple. 

Here are three reasons we would be buyers, and why we believe the headline risk hitting the stock won’t affect the company long term:

1. Dividend support

With its stock around $95 per share Friday, Morgan Stanley carries a dividend yield of nearly 3%. We like that the stock appears to be sticky around that yield level.

• If you look at the intraday action on Friday, shares traded to an intraday low of $93, but reversed from that level and ended at $95.5.

• It also happened on 18th Jan 2022, when the stock fell to session low of $92.94 but found support and closed at $94.

• On Nov. 30, 2021, as well, the stock breached $94 intraday, but reversed higher and closed the day at $94.82.

• If we try to reason what's happening, we believe hedge funds set buying criteria for stocks, and when MS hits the price at which the dividend yield becomes 3%, they send in bids.

Another reason we’re viewing this recent share weakness as a buying opportunity: Morgan Stanley also is repurchasing about $3 billion of stock per quarter.

2. Confidence in management

As we get to research our portfolio companies more and more, we've become more of a great admirer of Morgan Stanley CEO James Gorman. His efforts have been successful in transforming the firm into much more than just an investment bank. Recent acquisitions of online brokerage E-Trade and asset management firm Eaton Vance support our view that the company is branching out from its roots. That strategy is still in place, and we believe in it over the long term. 

Just like you are making a bet on Jim Farley when you buy Ford, when you buy Morgan Stanley, you are making a bet on James Gorman. This CEO has done a remarkable job getting Morgan Stanley's multiple from 8 to 14, while Goldman Sachs' multiple remains below 10. How did that happen? Because he’s developed a steady revenue stream from the wealth management business, which is much more stable than trading.

Also keep in mind that Morgan Stanley is the kind of company that benefits from Federal Reserve interest rate hikes, which are expected to begin next month, although the benefit is not as tremendous as for portfolio holding Wells Fargo (WFC).

3. Great earnings

We thought Morgan Stanley’s fourth-quarter results were great, and the report is only a month old at this point. That gives us confidence to buy into weakness, or buy the dip as the strategy is also called. That’s because we know the company is doing well in its core business even as the stock market volatility continues.

What about the investigations into Morgan Stanley? (which we reported last Friday here)

There’s a lot weighing on markets right now — Russia-Ukraine tensions, inflation, the Fed — and some of Morgan Stanley’s weakness may be related to that challenging macro picture. There also might be some company-specific news hurting the stock. Last week, the Wall Street Journal reported that the Securities and Exchange Commission (SEC) issued subpoenas to Morgan Stanley and Goldman Sachs as part of a probe into block trading — when institutions buy or sell large chunks of stock in a single transaction. We will continue to monitor this situation, but at this point, we view them primarily as headline risk and not a material problem.