Technology investors (and media and telecoms) should start preparing their buy lists now that the bear market is lower, says Morgan Stanley. Wall Street firms expect stocks to be about three months away from that bottom, meaning the tech sector could get a big boost from a strong rebound in the second half of the year, according to a Monday note. “History suggests that Tech declines coincidentally with the overall equity world in bear markets, modestly at troughs and then outperforming in low positions with 100% positive return hit rates (1, 3, 6, and 12 months after troughs), ” writes strategist Andrew Pauker. Because of this, strategists provide investment guidance for periods before, during and after stock market troughs. He generally recommends that investors wait for a more “resilient” fundamental before increasing portfolio risk. Before the bottom, higher quality and more defensive names should prevail, with entertainment names, internet stores and software leading the sector. In contrast, hardware tech and semiconductors tend to underperform during this period. That’s because software names tend to be more sensitive to interest rates than hardware stocks or tech chips. Netflix was one of the names Morgan Stanley recommended for the period before the market bottom. Analyst Benjamin Swinburne has an equal weight rating on the streaming stock, but says it remains a “scaled, profitable market leader” in the sector. Netflix shares are up about 6% this year. NFLX YTD mountain Netflix in 2023 IBM also bought before the bottom of the bear market. Analyst Erik Woodring said equal-weight-rated stocks are “the most defensive names in our universe,” and tend to outperform in late-cycle environments. Woodring warned that underperforms in the initial cycle. IBM shares are down nearly 8% this year. Verizon also bought ahead of the trough, and is overweight-rated by analyst Simon Flannery; shares are down about 3% this year. Meanwhile, after the low bear market, Morgan Stanley said cyclicals, quality and lower value names have the most “impressive outperformance.” According to the note, internet retail, media and interactive services, semiconductors and technology hardware posted the strongest relative returns. “Notably, cyclicals outperform defensives by 28%, on average, and low quality outperforms high quality by 20%, on average,” the note said. After the trough, Walt Disney Company shares are expected to outperform, even though the stock is up more than 16% this year. Analyst Benjamin Swinburne said that the park and the company’s advertising business should get a boost from healthier consumers, as well as from “a new approach to manage and optimize the Media business.” Morgan Stanley also recommends cloud computing company Snowflake, with an overweight rating and a 1% downgrade in 2023. Analyst Keith Weiss said Snowflake is “well positioned” to benefit as the company builds data cloud infrastructure to support artificial intelligence and machine learning initiatives. “The consumption price model is very volatile and sees a more direct impact from changes in the demand environment – while it hurts when it goes down, SNOW should be the first to slow down,” Weiss wrote. Meanwhile, for investors trading through the trough and into the bull market, names such as Salesforce and Microsoft are buying opportunities, Morgan Stanley said.