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Happy Sunday to everyone on The Street. 

Everyone’s talking about which equities will benefit depending on who wins the election. But I want to know what stocks will pop if they free Young Thug. After all, it’s looking increasingly likely.

We wrote today about how some analysts are growing wary of the luxury sector. (For more on that, keep scrolling.) But I don't know. If I were Thugger, I’d spend my first day out the Feds at the Balenciaga or Bentley store — and perhaps singlehandedly deliver an earnings boost to respective parent companies Kering and VW.

Or maybe I’ll make the galaxy brain move and just invest in Poland Spring… IYKYK.

Before we dive in, here’s a quick word from our sponsor:

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Anime Is Finding Global Success

Moving Overseas

Anime is shaping up to be Japan’s next major export. The industry has already doubled from 2012 and 2022 to a $20 billion valuation, according to Jefferies (JEF). And the growth has largely come from overseas markets, which accounted for half of 2022’s global market. 

Streaming platforms like Netflix (NFLX) have been able to capitalize on this trend. The streaming giant’s anime views saw a 14% increase in the second half of 2023 compared to the first half of the year. Its live-action adaptation of “One Piece,” a Japanese comic, was its most-viewed show in the second half of 2023.

Sharing the Wealth

The North American market for anime has grown from $1.6 billion in 2018 to $4 billion in 2024. The market has also been expanding rapidly in Asia, particularly in China. 

Streaming platforms and merchandising are expediting that growth. Sanrio (TYO: 8136), owner of Hello Kitty, has seen its profits and share price soar in the past 5 years. 

Other companies, such as Sony (SONY) and Toei Animation (TYO: 4816), are also well-positioned to benefit from anime’s rising mainstream success. Sony acquired streaming service Crunchyroll for almost $1.2 billion in 2020. 

Getting in on the Action

Toei, which owns the “One Piece” franchise as well as “Dragon Ball,” not only makes anime but also profits from licensing revenue thanks to its copyrights. This aspect of its business proved crucial as its sales outside of Japan made up more than half of its total revenue in its latest fiscal year. 

The anime business is booming for streamers and investors alike, and a number of companies could benefit.

Luxury Is Falling Out of Favor

Chinese Growth Has Stalled

Louis Vuitton (LVMUY) stock tumbled 7% following lower-than-expected Q3 results which showed a 5% year-over-year drop in sales. This fall-off was largely due to a significant decrease in Chinese demand for luxury products. 

Chinese shoppers, who have been key to the company’s success, have begun pulling back on spending as a result of the country’s economic challenges. Beijing’s tariffs on European cognac aren’t helping its Hennessey brand, either. 

This slowdown, while particularly pronounced in China, has been a worldwide phenomenon. Middle-class consumers, hampered by inflation and rising prices, are cutting spending and hurting the industry’s profits.

Stimulus Won’t Help

Chinese officials announced aggressive stimulus plans in late September aimed at kickstarting its sputtering economy. While these efforts will certainly have some effect, analysts think it’s unlikely that it will help the luxury industry. 

According to experts, the stimulus likely will not target the demographic of consumers that luxury brands rely on the most. And regardless of this outcome, some analysts think luxury shopping has largely fallen out of favor for Chinese consumers.

These Stocks May Benefit

Morgan Stanley (MS) pointed out some stocks that could benefit from this shifting landscape.

The investment firm is specifically looking at companies with a high dividend yield and strong cash flow. Among those stocks, it screened for those trading at least 20% higher than their Hong Kong-listed shares with at least 10% implied upside to Morgan Stanley’s price target.  

Four stocks met that criterion: PetroChina (857-HK), WeiChai Power (2338-HK), Aluminum Corp (2600-HK), and Anhui Conch Cement (914-HK). US investors can gain exposure to each of these stocks through the iShares MSCI China ETF (MCHI).

Morgan Stanley’s Earnings Season Stock Picks

Earnings Are Upon Us

It’s earnings season, and around a 10th of the S&P 500 reported over the past week, with another 20% of the index set to report this coming week. Morgan Stanley (MS) believes several stocks should see an uptick following their upcoming earnings reports.

The Wall Street consensus estimates that the index’s EPS and sales growth will rise 3% and 4% year-over-year in Q3, respectively. According to analyst Michelle Weaver, it will be crucial for companies to see beats on both metrics in order to see stock growth.

Eaton

The investment firm predicts that Eaton (ETN) will achieve beats on all of its key performance indicators, like organic growth and margins in North and South America. 

Analyst Chris Snyder noted that the company is poised for sustained high-single-digit organic growth and has set itself apart in the US industrials space. He has given the stock a $370 price target, or around 7% upside from last week’s levels. Eaton is set to report this Tuesday.

Lineage

Real estate investment trust Lineage (LINE), which just IPO’d in July, is another company that Morgan Stanley expects to get a boost from solid earnings. Analyst Ron Kamden thinks it will report mid-single-digit same-store net operating income growth. 

According to Kamden, Lineage is the global leader in temporary warehouse space and boasts the strongest portfolio and differentiated tech platform. He believes that it’s currently a good time to buy as many investors are still waiting on further data before buying in. 

He has given the stock a $100 price target, or around 28% upside. Lineage will report on November 6th.

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Last Week’s Poll Results

Which stock do you think will outperform over the next 12 months?

🟩🟩🟩🟩🟩🟩 Vertiv (VRT)

🟨🟨🟨⬜️⬜️⬜️ Modine Manufacturing (MOD)

Which stock do you think will outperform over the next quarter?

🟨🟨🟨🟨🟨⬜️ Boeing (BA)

🟩🟩🟩🟩🟩🟩 Adobe (ADBE)

Which stock do you think will outperform over the next 12 months?

🟩🟩🟩🟩🟩🟩 Experian (EXPGY)

🟨🟨🟨⬜️⬜️⬜️ Generali (ARZGY)

🟨🟨🟨🟨🟨⬜️ Keppel (KPELY)

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