Morgan Stanley (MS -1.07%) has arguably undergone the most significant transformation among the major Wall Street banks in recent years. Beyond a strategic expansion in wealth management, the bank has embraced technology to enhance profitability.
The initiatives have paid off for shareholders, as Morgan Stanley stock has returned 330% in the past five years, outpacing the 133% gain in the S&P 500 (^GSPC 0.21%). Yet since reaching an all-time high price of $142.03 on Feb. 7, the stock is down about 12% amid concerns about the strength of the economy.
Let's discuss what it will take for Morgan Stanley to rebound, and if you should buy the stock now while it's below $140.
Rock-solid fundamentals
Last year was stellar for Morgan Stanley, capitalizing on a resilient macroeconomic environment and strong performance of capital markets. Net revenue surged by 14% year over year, with management citing the operating momentum across the bank's platform.
Investment banking was a bright spot, as recovery in mergers and acquisitions (M&A) boosted fee-based income. The bank gained market share in equity and fixed-income trading activities.
In wealth management, Morgan Stanley's 2020 acquisitions of retail brokerage E*TRADE and investment manager Eaton Vance continue to bear fruit. In 2024, total client assets reached $7.9 trillion, up 20% from 2023 and nearly three times the $2.8 trillion in 2018, highlighting the bank's ascent in this high-growth segment.
Morgan Stanley translated its new cross-selling opportunities -- alongside an expanding deposit base and growing loan portfolio -- into 2024 earnings per share (EPS) of $7.95, which was 38% higher than the prior year's adjusted result. An 18.8% return on tangible common equity (ROTCE), which is approaching the bank's 20% long-term goal, demonstrates the effectiveness of the bank's diversified model at generating profits from its balance sheet.
The trend likely fueled Morgan Stanley's decision to raise its quarterly dividend to $0.925 per share and repurchase $3.3 billion in stock during 2024, projecting confidence in its cash flow and growth trajectory. Wall Street analysts tracked by Yahoo! Finance share that optimism, forecasting 7% revenue growth in 2025, while their EPS average estimate of $8.69 is a 9.3% increase from 2024.
Image source: Getty Images.
Navigating macroeconomic uncertainties
Despite Morgan Stanley's improved operating diversification and global footprint, the bank remains closely tied to trends in the broader U.S. economy. Indicators like steady consumer spending, low unemployment, and a rising stock market lifted the business last year, yet 2025 has brought fresh doubts about whether those tailwinds will hold.
The risk investors must weigh is the chance that conditions worsen, with concerns that tariffs imposed by the Trump administration on U.S. trading partners could pinch businesses and consumers. A scenario where corporations pull back from M&A or dial down investment projects would directly hit the bank's lending opportunities and growth potential.
On the upside, it's possible the recent recession fears in headlines simply fade, with the U.S. economy and broader stock market climbing over yet another version of the ever-present wall of worry. More positive developments include February's consumer price index (CPI) showing an annual inflation rate of 2.8%, down from 3% in January. This cooling trend might provide flexibility for the Federal Reserve to cut rates, boosting economic activity and loan demand while supporting Morgan Stanley's outlook.
All this is in the context of what I believe is an attractive valuation for Morgan Stanley. Its pricing metrics -- including a forward price-to-earnings ratio (P/E) of 14.3 and a price-to-book value (P/B) of 2.1 -- stand shoulder to shoulder with those of its larger rival, JPMorgan Chase. That said, Morgan Stanley's stock holds a clear edge with its stronger growth and larger dividend (3%), compared to JPMorgan's 2.2% yield.
MS Price to Book Value data by YCharts
Is it time to buy Morgan Stanley?
The recent stock market correction presents investors with an excellent opportunity to buy the dip in shares of a high-quality industry leader that's well positioned to reward shareholders over the long run. With some optimism toward the global economy, I'm bullish on Morgan Stanley, and predict its stock price will rally back above $140 by this time next year.
