Morgan Stanley reveals the red-hot ‘overweight’ stocks worth buying as earnings season approaches

Sam BourgiTue, September 22, 2026 at 9:30 PM UTC

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The Federal Reserve’s decision last week to raise interest rates for the first time since 2023 has stirred fears that the economy is moving into the later stages of the business cycle. Morgan Stanley sees something different: a “classic” mid-cycle environment that could increasingly favor large-cap, high-quality stocks as earnings season approaches.

“Stick with large cap quality stocks,” Morgan Stanley strategist Mike Wilson wrote in a Monday note reviewed by Business Insider.

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The bank identified 15 major stocks that fit its quality criteria and carry an “overweight” rating from its analysts, including chipmakers Nvidia (NASDAQ: NVDA) and Micron Technology (NASDAQ: MU), tech companies Apple (NASDAQ: AAPL) and SanDisk (NASDAQ: SNDK) and credit giants Visa (NYSE: V) and Mastercard (NYSE: MA).

The rest of the list spans several sectors, including consumer staples, retail, health care, technology, semiconductor equipment, software and travel.

Among them are Costco (NASDAQ: COST), Coca-Cola (NYSE: KO), Lam Research (NASDAQ: LRCX), Arista Networks (NYSE: ANET), Gilead Sciences (NASDAQ: GILD), Seagate Technology (NASDAQ: STX) and Booking Holdings (NASDAQ: BKNG), along with the beaten-down UnitedHealth (NYSE: UNH) and ServiceNow (NYSE: NOW), which was caught up in the broader software selloff earlier this year.

To make the cut, companies had to rank among the 1,000 largest stocks by market value, have higher earnings estimates than three months ago, place in the top third of Morgan Stanley’s quality screen and carry an “overweight” rating from the bank’s analysts.

What changes in mid-cycle

The focus on earnings reflects Morgan Stanley’s broader view of where the market is headed. The bank believes that the bull market still has room to run, but the companies leading it could change as the economic cycle matures. Wilson has previously described a shift away from the early-cycle environment, when economically sensitive, higher-risk companies benefited as earnings rebounded from depressed levels.

In the mid-cycle phase, strong earnings growth becomes more important as higher interest rates weigh on stock valuations. Wilson has pointed to the current combination of strong earnings growth and declining valuations as a sign that this shift is already underway.

During mid-cycle, “quality starts to matter again,” Wilson said in an Aug. 3 episode of the Thoughts on the Market podcast. In a follow-up podcast on Sept. 18, he pointed to strengthening earnings expectations in software, financial services, insurance and health care services, suggesting those sectors could pick up some of the momentum enjoyed by semiconductors and other cyclical stocks earlier this year.

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There are signs that shift may already be underway. The Philadelphia Semiconductor Index, a widely followed benchmark for the chip industry, has surged 75% this year but is down roughly 14% from its June high, according to Yahoo Finance data.

For investors, a shift in market leadership would put more weight on companies that can keep growing earnings and generating cash even as borrowing costs rise.

Read More: Vanguard reveals what's coming for U.S. stocks — and it could be bad news for this group of investors

How long will the earnings boom last?

If earnings are becoming more important to stock returns, investors may need to be more selective about where they put their money. That comes after an especially strong second quarter, when S&P 500 earnings grew 28.9%, according to FactSet, marking the third straight quarter of growth above 25%.

Analysts tracked by FactSet expect earnings growth to remain strong in the third quarter, but Goldman Sachs sees that pace slowing next year.

In May, Goldman forecast S&P 500 earnings growth of 24% this year, slowing to 13% next year. The bank also expects companies benefiting from AI infrastructure spending to account for roughly half of this year’s earnings growth.

But Goldman has also made the case for looking beyond the stocks that have led those gains, supporting Morgan Stanley’s argument for a more selective approach. Chief U.S. equity strategist Ben Snider said it would be beneficial for investors “to diversify beyond AI-infrastructure stocks,” especially if an improved geopolitical outlook boosts consumer-facing stocks.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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Source: “AOL Money”