UBS ran a screen and found a basket of stocks that are cheap, even if the economy falls into recession. The investment bank took a look at the markets to find sectors that are too battered to discount the risk of a downturn. Stocks remain depressed even after last month’s rally, with the S&P 500 down about 12% this year as investors debate rising inflation and slowing growth. “At the equity level, wide dispersion and pockets of extreme valuation discounts leave attractive opportunities in areas where recession risks appear highly priced,” UBS strategist Keith Parker wrote in a note on Wednesday. UBS discovered cheap, quality stocks after adjusting to a recessionary scenario. These names have underperformed since June, despite rising 2023 earnings estimates, and could be about 35% higher in a downturn, the note said. The investment bank expects “there is room to add selective cyclical exposure in sectors that offer better risk/reward,” with a preference for consumer discretionary and energy stocks. Here are 10 picks. AutoNation looks cheap even in a recession. Auto retailers have maintained pricing power amid strong demand, despite slowing consumer spending and weaker economic growth. AutoNation shares are up 3% this year. Dick’s Sporting Goods is “overpriced” for a fall. Citi recently named the sports retailer on its focus list, saying it trades at a “fraction of valuation” justified by expanding profit margins. Shares are down 15% year to date. Merck could have “more room to run,” according to Deuterium Capital’s John Ricciardi. The fund manager recently named stocks that investors should consider outside of tech. Merck is up 13% this year. Toll Brothers , Stanley Black & Decker , M & T Bank , Bristol-Myers Squibb , Foot Locker , Lennar and Columbia Sportswear also made the list.
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