Stocks rise amid Morgan Stanley dollar call News ad

When the biggest investment banks in the financial market direct Main Street toward one strategy, they usually do so in a subtle way to test the waters. If there is a lot of support behind the idea, then they will pull out the big guns with a wave of content, guest interviews, or other ways to attract more minds and capital to the recommendations.

Today those who are Morgan Stanley New York Stock Exchange: MS recommended investors to sell dollars. This is an open-ended recommendation that conflicts with views regarding new potential trade tariffs proposed by the newly elected United States administration. However, when investors zoom out and check price action in asset classes other than currencies, such as bonds and commodities, it becomes abundantly clear that the market really wants a lower dollar.

Moreover, based on the Manufacturing PMI, the manufacturing sector is now in a 25-month slump and only a weaker dollar can bring it back to life. That’s why investors might want to look at stocks like Caterpillar Inc. New York Stock Exchange: CAT as a net exporter or Occidental Petroleum Co. New York Stock Exchange: OXYas oil demand with a lower dollar will stimulate the energy sector. Finally, Alibaba Group New York Stock Exchange: BABY In each cycle, higher valuations for foreign stocks are driven by a weaker dollar.

Why a Weaker Dollar Could Boost Caterpillar Stock’s Upside Potential

As a US manufacturer and net exporter, Caterpillar could see sales increase if the dollar weakens. A stronger foreign currency against the dollar increases buyers’ purchasing power, allowing them to place larger orders with Caterpillar than they do today.

This is always the main reason for the outperformance of industrial stocks. A weakening currency tends to trigger new orders for durable goods needed by other countries, pushing up earnings and stock prices. With Morgan Stanley analysts supporting this trend, the staff at JP Morgan Chase decided to get ahead of the pack and recommend Caterpillar stock.

As of December 2024, these analysts maintained an Outperform rating on the company, which translates to a $515 price target for Caterpillar stock. To prove these new views correct, the stock would need to rise as much as 30.3% from where it trades today, showing retail investors the power such a currency move can have on a company.

In addition to these analysts, there are some institutional buyers leaking into Caterpillar stock today. Allocators at Geode Capital Management decided to increase their stake in the company by 0.7% as of November 2024, bringing their net position today to a high of $4 billion, or 2.1% ownership of Caterpillar.

How a recovery in manufacturing activity could impact oil prices and increase oil inventories in Western countries

A weaker dollar and a potential recovery in manufacturing activity in the United States could lead to a new wave of oil demand to meet the production and transportation needs of raw materials and finished products. Knowing this, Warren Buffett accumulated up to 29% of Occidental Petroleum shares.

And it’s not just a profit play, as he also sold other names in the portfolio, such as Apple Inc. NASDAQ:AAPL And Bank of America Co. New York Stock Exchange: BAKmaking the markets think there may be a broader view and opinion behind his decision.

Either way, Occidental Petroleum stock is a value play, especially since oil prices have struggled to stay above $70 a barrel for so long. Compared to the historical average price-to-earnings (P/E) valuation of over 30.0x, today’s multiple of 13.3x would make this stock an interesting trade to explore. This is why analysts feel so comfortable raising the stock.

As of November 2024, Raymond James analysts have decided to maintain a Strong Buy recommendation on Occidental Petroleum shares, while setting a valuation of the company at $78 per share. Compared to today’s share price, this view implies a net upside of 60.8% from today’s share price.

Falling dollar boosts overseas equities, with Alibaba leading today

Mega-investors such as Michael Burry and David Tepper have found ample reasons to make Alibaba stock the largest holding in their funds. While some opinions may justify a much higher valuation for the company, it all comes down to where the dollar trades today and where it might trade tomorrow.

If Morgan Stanley analysts are correct in calling for a fall in the dollar, then foreign stocks (linked to dollar movements) will rise, just as any commodity quoted in dollars rises when the dollar falls.

Knowing that this was true and that the stock was as cheap as it is today, management implemented a $25 billion Alibaba stock buyback program.

Moreover, this is why Macquarie analysts upgraded Alibaba from Neutral to Outperform as of October 2024. Today they value Alibaba at $145 per share and have not changed this conclusion since the ratings appeared. Upside potential of 61.2% from where the stock is trading today.

As a final indicator of this trend, investors can recheck the $5.5 billion in institutional capital that has flowed into Alibaba in the last 12 months alone.

Before you think about Occidental Petroleum, you need to hear this.

MarketBeat tracks Wall Street’s top-rated and best-performing analysts daily and the stocks they recommend to their clients. MarketBeat identified five stocks that top analysts were quietly telling their clients to buy now, before the broader market caught on… and Occidental Petroleum wasn’t on the list.

While Occidental Petroleum currently has a Hold rating among analysts, the top-ranked analysts think these five stocks are Strong Buys.

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