This edition of Market Factors begins with stock pick lists from two strategists with opposing views on AI-related stocks. We continue with Morgan Stanley’s favourite investment themes and a diversion discussing movies that need to be remade.
German Chancellor Friedrich Merz (R) and German Minister for Research, Technology and Aerospace Dorothee Baer (C) face homanoid robot "Ameca" designed for the care sector as they tour the venue at the launch of the so-called "High-Tech Agenda Germany" on Oct. 29, 2025 in Berlin.TOBIAS SCHWARZ/AFP/Getty Images
Equities
Pro-AI and anti-AI stock picks
Two major Wall Street brokerage firms have released wildly different stock pick lists over the past 48 hours. Concerned that AI-related stocks are now too hot to buy, BofA chief U.S. quantitative strategist Savita Subramanian published When the spotlight becomes too hot: opportunities away from AI. Almost simultaneously, Morgan Stanley equity strategist Michelle Weaver reported signs that AI adoption was raising profit margins for companies outside of the tech sector, and offered a list of related investment opportunities.
Ms. Subramanian believes that investor fervor for AI stocks has diverted their attention from substantial value elsewhere. She screened the universe of ex-AI, buy-rated stocks at BofA for companies with rising three-month earnings revisions, forward price-to-earnings ratios below the market average, and trading at least 10 per cent below 52-week highs.
The resulting list of 82 stocks was shared with BofA equity analysts who identified the most promising stocks. The end result was a list of 16 stocks - Amcor (AMCR-N), AT&T (T-N), BGC (BGC-Q), Church and Dwight (CHD-N), Dollar General (DG-N), Eversource (ES-N), Freeport-McMoran (FCX-N), Henry Schein (HSIC-Q), J.B. Hunt (JBHT-Q), KeyCorp (KEY-N), McCormick (MKC-N), OneOk (OKE-N), Progressive (PGR-N), Regency Centers Corp (REG-Q), Viking Holdings (VIK-N) and Walt Disney Co (DIS-N).
Ms. Weaver, by contrast, is perfectly comfortable recommending stocks based on the proliferation of AI. She reports that, “Our proprietary analysis shows a steady increase in the share of companies seeing quantifiable benefits from AI adoption.” Morgan Stanley analysts indicate that 24 per cent of their coverage universe can be classified as AI adopters with quantifiable improvement as a result.
Her stock recommendations are listed under different categories. The Financial Impact segment, where AI has improved revenue or provided cost savings, includes Procter & Gamble (PG-N), The Estee Lauder Companies (EL-N), Moody’s Corp. (MCO-N) and IQVIA Holdings Inc. (IQV-N).
Cases where AI has improved productivity include education software provider Duolingo Inc. (DUOL-Q), Walmart Inc. (WMT-N), and Johnson Controls International (JCI-N). Prominent companies improving sales and marketing through AI according to the report are Colgate Palmolive (CL-N), Chipotle Mexican Grill (CMG-N), eBay Inc. (EBAY-Q), and Servicenow (NOW-N).
Ms. Weaver also includes a list of “mispriced adopters.” These are cases where option prices indicate a less than 20 per cent probability of the stock hitting consensus profit expectations. For Ms. Weaver, the implication is that the stock prices themselves also understate growth prospects that Morgan Stanley believes will be fully realized. These include Amazon.com (AMZN-Q), Blackrock Inc. (BLK-N), MarketAxess Holdings (MKTX-Q), Salesforce Inc. (CRM-N) and Wingstop Inc. (WING-Q).
My main takeaway from the lists (which, as always, should only be used as a starting point for research) is that we need to remain vigilant for historically boring companies improving their profit growth path through the use of AI.
More investment ideas
Thematic stock picks from Morgan Stanley
In a separate report this week, Morgan Stanley analysts led by Stephen Byrd implemented four themes they expect to outperform in the coming years – tech diffusion, the future of energy, longevity and multipolar world – and developed a remarkably complicated methodology for choosing the stocks that benefit.
The stock selection process starts with the usual analysis of margins, growth, earnings and price. Another layer follows that attempts to assess the stock price sensitivity to the overall market and the specific investment theme.
The intention with the second layer is to uncover companies that will generate returns greater than the average company in the favoured sectors. In research lingo, they are looking for alpha within the four broad themes.
Many of the stock ideas straddle more than one theme. Samsung Electronics (SSNLF) for example is part of AI and tech diffusion, future of energy and multipolar world. Nvidia Corp. (NVDA-Q) and Broadcom Inc. (AVGO-Q) are listed under AI and tech diffusion and also multipolar world.
There are a total of 24 names on the list. The names most likely to interest Canadian investors outside of those already mentioned are Salesforce Inc. (CRM-N) and Tencent Holdings (TCEHY) under the AI and tech diffusion theme, Rolls Royce Holdings PLC (RYCEY) (future of energy), Airbus SE and Northrup Grumman (NOC-N) (multipolar world), and Eli Lilly & Co. (LLY-N) (longevity).
A scene from In Time, with Justin Timberlake and Amanda Seyfried.Photo credit: Stephen Vaughan
Diversions
Last Starfighter remake would be a blockbuster
The MakeUseOf site listed four terrible movies with concepts so good that a different director should take another shot at it.
The first movie listed was In Time and the idea is fascinating. Everyone wears a watch with their time of death on it. But, they can buy or win extra time. Justin Timberlake is the lead and I guess that’s where the mistakes began.
The second movie, Click, about a remote control that works on everything, sounds a bit dumb. The third movie has a shockingly good cast. Passengers stars Jennifer Lawrence and Chris Pratt but it apparently sucks.
The fourth movie is Stephen King’s Maximum Overdrive about tractor trailers that become sentient. I vote for leaving this one alone.
The movie I want to see remade is The Last Starfighter. The technology in 1984 wasn’t good enough to support a movie about a video game planted by aliens. The aliens were testing for specific abilities used to fly warships in a world far, far away. It’s young trailer park resident Alex Rogan who gets whisked away from his highly supportive girlfriend Maggie to be a real starfighter pilot. I’m happy just thinking about this.
The essentials
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Globe Investor highlights
This month’s in-depth Q&A with CIBC’s chief market technician, Sid Mokhtari, on his latest stock picks and market views
Inovestor’s Anthony Menard has a screen that turned up 12 TSX momentum stocks supported by earnings revisions and cash flow growth
Frederick Vettese has a warning for those investors believing high-dividend stocks will reduce long-term investment risks. Meanwhile, David Berman makes the argument for buying stocks that just saw dividend cuts
Why Softbank’s $5.8-billion Nvidia stake sale is stirring up fresh AI bubble fears
The case for a Fed pause is mounting, says Reuters’ Mike Dolan
Quick Hits
No one has ever successfully picked two market tops so I tend to ignore Michael Burry news. His recent allegations, however, have my attention. Mr. Burry is accusing megacap tech companies of overstating profits through depreciation methods on semiconductors.
The New York Times reported that a company called QTS Data, owned by Blackstone, is close to completing a mammoth US$3.5-billion mortgage backed security deal relating to new AI data centres. The end of the AI story, which I’m not saying is now, may play out in credit markets.
I listen to a lot of podcasts while working. I need to spend less time on sports and culture podcasts and more time with Bloomberg’s Odd Lots and Morgan Stanley’s Thoughts on the Market. They are easy ways to learn more about markets and how they work.
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