Which of these 2 stocks can turn out to be absolute gem? – Morgan Stanley (MS), Leucadia National Corporation (LUK)

The shares of Morgan Stanley have increased by more than 5.24% this year alone. The shares recently went up by 0.04% or $0.02 and now trades at $55.22. The shares of Leucadia National Corporation (NYSE:LUK), has slumped by -7.25% year to date as of 05/14/2018. The shares currently trade at $24.57 and have been able to report a change of -0.28% over the past one week.

The stock of Morgan Stanley and Leucadia National Corporation were two of the most active stocks on Monday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 17.74% versus 18.00%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that MS will grow it’s earning at a 17.74% annual rate in the next 5 years. This is in contrast to LUK which will have a positive growth at a 18.00% annual rate. This means that the higher growth rate of LUK implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. MS has an EBITDA margin of 48.66%, this implies that the underlying business of MS is more profitable. The ROI of MS is 1.50% while that of LUK is 2.80%. These figures suggest that LUK ventures generate a higher ROI than that of MS.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, MS’s free cash flow per share is a negative -25.01, while that of LUK is also a negative -9.34.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The debt ratio of MS is 5.85 compared to 2.04 for LUK. MS can be able to settle its long-term debts and thus is a lower financial risk than LUK.


MS currently trades at a forward P/E of 10.80, a P/B of 1.38, and a P/S of 2.10 while LUK trades at a forward P/E of 14.28, a P/B of 0.88, and a P/S of 0.72. This means that looking at the earnings, book values and sales basis, MS is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of MS is currently at a -10.69% to its one-year price target of 61.83. Looking at its rival pricing, LUK is at a -27.74% relative to its price target of 34.00.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), MS is given a 2.30 while 1.00 placed for LUK. This means that analysts are more bullish on the outlook for MS stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for MS is 1.17 while that of LUK is just 1.43. This means that analysts are more bullish on the forecast for MS stock.


The stock of Morgan Stanley defeats that of Leucadia National Corporation when the two are compared, with MS taking 3 out of the total factors that were been considered. MS happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, MS is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for MS is better on when it is viewed on short interest.

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