Missed the comeback? These stocks are due for a catch-up trade, according to Morgan Stanley

A man walks past shelves of Coca-Cola bottles and cans at a shopping mall in Lagos, Nigeria November 5, 2019.The S&P 500 has experienced an epic rebound but not every stock participated, leaving room for some big returns as those left behind catch-up, according to Morgan Stanley.

The S&P 500 hit a record high last week, wiping out all the coronavirus-related losses in the major average. The 500 stock index has rallied nearly 55% off its March low and now sits up more than 5% for the year, thanks to major leadership from technology equities.While the index has seen a major rebound, not all its constituents have recovered, paving the way for gains in some of the healthier names, according to Morgan Stanley.

Morgan Stanley believes earnings power will ultimately drive stock returns, so the Wall Street firm screened for stocks that have historically had a strong link between relative performance and earnings expectations. The group of stocks' recent performance has materially lagged their historical trend, leaving room to play catch-up. Plus, all of the stocks have an overweight rating by Morgan Stanley analysts.

"The divergence from history looks compelling to us as a catch-up trade for a group of stocks," Morgan Stanley's chief U.S. equity strategist Mike Wilson told clients. "While our screen does lean a bit more defensively than our sector recommendations in what we believe is a new bull market, we think the relative magnitude of underperformance from this group and their typical close relationship with earnings likely offer some short-term upside on a catch-up trade.

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