Blue chip stocks can be an excellent source of stability for your portfolio because they're established companies with recognizable brands and track records of success. During difficult market conditions, blue chip stocks often hold up quite well.

In recent weeks, the fall of SVB Financial and Signature Bank have dragged down the entire financial sector. Although there are short-term risks to banks, especially those with large unrealized investment losses and uninsured deposits, there are also opportunities to find bargains in the sector. One S&P 500 blue chip financial stock that's cheap today is Morgan Stanley (MS -1.89%).

Morgan Stanley is on solid financial footing

Since the failure of SVB Financial (parent of Silicon Valley Bank) and Signature Bank, investors in financial stocks have been very cautious, selling stocks first and asking questions later.

The two factors that led to the run on these banks were a large number of uninsured deposits and large amounts of unrealized losses on their books. The run on deposits created a crunch where these banks needed to raise capital quickly and were being forced to realize losses on their held-to-maturity portfolios.

Morgan Stanley doesn't face the problems that plagued those fallen regional banks. The company has two bank subsidiaries: Morgan Stanley Bank and Morgan Stanley Private Bank. About 70% of its deposits are insured, according to the Federal Deposit Insurance Corp. (FDIC). By comparison, only 5% of Silicon Valley Bank's deposits were insured.  

Another advantage Morgan Stanley has over struggling regional banks is that its deposit mix is favorable. Ninety percent of its deposits come from its Wealth Management client base. 

The most significant threat to the company would be if something extreme were to happen and clients pulled funds from investments en masse. But such an event seems unlikely.

Wealth management clients are more likely to maintain funds in their accounts, as opposed to Silicon Valley's customer base, which was made up largely of start-ups that faced funding issues and were a source of deposit outflow all of last year. By comparison, in 2022, deposits at Morgan Stanley grew 6% to $351 billion. 

How Morgan Stanley built a more resilient business

Morgan Stanley has done an excellent job diversifying its business model in recent years. Previously, the company focused on institutional securities (which includes trading and investment banking), with a small wealth and investment management division.

In 2020 Morgan Stanley made two major acquisitions -- the E*Trade online trading platform and wealth manager Eaton Vance -- which diversified its revenue stream and deposit base. When investment banking activity came to an abrupt halt last year, Morgan Stanley handled the difficult conditions well. Despite investment banking revenue falling 49%, Morgan Stanley's net revenue fell just 10%, thanks to modest growth in wealth management revenue. 

A blue chip stock at a bargain

Morgan Stanley stock has gotten caught up in the selling that hit other financial stocks and is down 11% since the start of March. This sell-off has the stock trading at a cheap valuation, with a price-to-earnings (P/E) ratio of about 13.8, below its 10-year average. Its P/E ratio, based on this-year's expected earnings, has it even cheaper at 10.5.

MS PE Ratio Chart

MS PE Ratio data by YCharts.

The bank has done a solid job of reshaping its business and is in a sound position. However, there's still uncertainty as the banking sector deals with interest rates that are expected to stay higher for longer until inflationary pressures subside. This uncertainty is why diversifying your portfolio and having a long-term investing mindset is essential.

That said, Morgan Stanley is a solid stock to buy today and hold for the long haul. If further selling drags the stock lower, it could be a great opportunity to add more shares along the way.