Investing.com -- Morgan Stanley has named Howmet Aerospace (NYSE: HWM) its new top pick in the aerospace sector, replacing FTAI Aviation, as the firm maintains a bullish outlook on the industry heading into third-quarter 2026 earnings despite softer investor sentiment.

The investment bank said underlying fundamentals remain stronger than current market sentiment suggests across both commercial aerospace and defense sectors. Morgan Stanley analysts emphasized that robust demand persists across commercial aviation and defense, with supply chain execution representing the main constraint on growth rather than weakening demand.

Morgan Stanley elevated Howmet to its top aerospace pick, recommending investors use the recent aftermarket de-rating as a buying opportunity. The firm views the commercial aftermarket selloff as overdone, noting that robust demand, constrained capacity, and pricing power support a multi-year upcycle.

The analysts highlighted that constrained capacity across specialty metals, castings, and forgings, combined with unprecedented industrial gas turbine demand, should sustain pricing power through the cycle. Morgan Stanley expects strong results from Howmet in third-quarter 2026 earnings and sees a relatively low bar for positive surprises.

The firm also noted that supply chain execution, rather than demand, remains the primary constraint on growth. Howmet benefits from exposure to both the commercial aftermarket recovery and the commercial OEM upcycle, positioning it favorably as production rates continue moving higher across major aircraft programs.

Morgan Stanley emphasized that engine maintenance is not entirely discretionary, while scarce maintenance, repair, and overhaul capacity and healthy backlogs limit airlines' ability to defer shop visits, providing substantial protection against near-term demand weakness.

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